This post is by Jeffrey Sparshott from Real Time Economics
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The Fed wants the expansion to keep going and going and going, employers need to draw more workers off the labor market’s sidelines, and China is warning its citizens away from visiting the U.S. Good morning. Jeff Sparshott here to take you through key developments in the global economy. Send us your questions, comments and suggestions by replying to this email.
Fed to Markets: We Got Your Back
Federal Reserve officials are watching the recent escalation in trade tensions. And if those tensions cause the economy to deteriorate, they could respond by cutting interest rates, Nick Timiraos reports.
- Fed Chairman Jerome Powell: “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain expansion.”
- The focus: The comments show the Fed has ended a debate over whether its next move would be to raise or lower rates and is focusing now on whether and when to cut them.
- Markets rallied: The Dow Jones Industrial Average and S&P 500 posted their biggest daily gains since Jan. 4, when Mr. Powell signaled a likely pause in rate increases.
WHAT TO WATCH TODAY
The ADP employment report for May is expected to show a net gain of 173,000 private-sector jobs. (8:15 a.m. ET)
IHS Markit’s U.S. services index for May is expected to tick down to 50.7 from a preliminary reading of 50.9. (9:45 a.m. ET)
The Institute for Supply Management’s nonmanufacturing index for May is expected to tick down to 55.0 from 55.5 a month earlier. (10 a.m. ET)
The Chicago Fed’s monetary policy conference features Fed Vice Chairman Richard Clarida at 9:45 a.m. ET and the Boston Fed’s Eric Rosengren at 11:15 a.m. ET.
Fed governor Michelle Bowman testifies at a Senate Banking Committee nomination hearing at 10:00 a.m. ET.
The Federal Reserve’s beige book is out at 2 p.m. ET.
President Trump is in the U.K. and Ireland.
The unemployment rate slipped to a 50-year low in April. It’s a sign of a strong labor market, but also a possible cause for concern.
- The low rate shows there are few Americans searching for a job. The share of American adults working or looking for work edged higher in the second half of 2018 but has since fallen. If Americans are dropping out, rather than flooding into a tight labor market, that could choke off a key source of fuel for the economic expansion.
- One way to look at that flow is the share of newly employed Americans who came from outside the labor force. That fraction has been trending at record highs since late 2016, suggesting many were being drawn in. But that share dipped the last couple of months. Does that mean the well of Americans on the sidelines in running dry?
- Watch the unemployment rate and participation rate figures in Friday’s jobs report for more clues. May’s numbers are out at 8:30 a.m. ET.
I’ll Tumble 4 Ya
The global economy stumbled in the first half of the year as trade and investment flows fell. With nearly half a year of data under its belt, the World Bank lowered its global growth forecast for 2019 to 2.6% from 2.9%—and cut its forecast for growth in trade to 2.6% from 3.6%, Josh Zumbrun reports.
- “There’s been a tumble in business confidence, a deepening slowdown in global trade, and sluggish investment in emerging and developing economies,” World Bank President David Malpass said. “This is worrisome because subdued investment weakens the foundations for sustained growth.”
China: Maybe Skip the Breakfast at Tiffany’s
China advised its citizens to reconsider visiting or studying in the U.S., a sign Beijing is targeting the lucrative tourism and education sectors as it tries to pressure Washington in their trade dispute. The government cited visa delays and interrogations by U.S. law enforcement, as well as frequent “shootings, robberies and thefts” as reasons to steer clear of America.
- Travel, including education, is one of the few areas where the U.S. runs a trade surplus. China is the largest source of both tourism dollars and international students to the U.S.
- Already there’s some fallout: Tiffany & Co. reported a drop in salesfor a second straight quarter and warned of more weakness ahead, citing lower demand from Chinese travelers and other tourists in the U.S.
The Powder’s Great
Switzerland’s ski slopes have finally recovered from the global financial crisis. There were 16.7 million overnight hotel stays from November to April, the best result since the 2007-2008 ski season. OK, good for Switzerland. But there’s a broader message: Industries in globally competitive sectors can withstand a strong currency. The Alps are nice in Switzerland, but they’re also pretty good in neighboring Austria and France, which use the euro. When the Swiss franc soared after the financial crisis and Europe’s ensuing debt crisis, it became a lot cheaper to ski in the eurozone. Swiss tourism suffered. The franc has weakened somewhat in recent years but is still quite strong. Even so, foreign hotel stays were up, suggesting resorts made adjustments to compete with their European neighbors. —Brian Blackstone
What Else We’re Following
Senate Republicans threatened to block President Trump’s planned tariffs on Mexico. “There is not much support in my conference for tariffs,” Senate Majority Leader Mitch McConnell (R., Ky.) said.
Automation could force more than 100 million women globally to find new occupations by 2030, according to a study from McKinsey Global Institute. The study shows technological advancements affect the genders nearly evenly, upending the notion that automation hits predominantly male manufacturing workers the hardest.
Africa’s most developed economy fell into its steepest quarterly contraction in a decade. South Africa’s gross domestic product shrank at an annualized 3.2% in the first quarter, as lengthy power outages hammered key mining and manufacturing sectors.
Strong job market + rising student debt = fewer M.B.A. programs. Between 2014 and 2018, the number of accredited full-time M.B.A. programs in the U.S. dropped 9% to 1,189. Schools such as Wake Forest University and Virginia Tech have discontinued their traditional two-year programs.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
One big question that’s perplexed economists: Why aren’t there more new businesses? “We propose a simple explanation for the long-run decline in the startup rate. It was caused by a slowdown in labor supply growth since the late 1970s, largely pre-determined by demographics. This channel explains roughly two-thirds of the decline and why incumbent firm survival and average growth over the lifecycle have been little changed,” Fatih Karahan, Benjamin Pugsley and Aysegül Sahin write for the Washington Center for Equitable Growth.
President Trump wants to dominate China. “The means is control over China, or separation from China. Anybody who believes a rules-based multilateral order, our globalised economy, or even harmonious international relations, are likely to survive this conflict is deluded,” Martin Wolf writes at the Financial Times.
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