U.S. Will Fail to Release Key Economic Report at Critical Moment
The U.S. growth outlook hangs more than ever on American consumers’ resilience amid stock-market swoons and trade-war tensions, but key data on their spending — the biggest part of the economy — will be missing due to the government shutdown. Was it a gangbusters Christmas shopping season as forecasts and anecdotal evidence suggested? Were consumers making big discretionary purchases in addition to essential spending as they entered 2019, even as some surveys showed confidence was waning? The answers will have to wait, as the December retail-sales report won’t be released as scheduled Wednesday while the Commerce Department remains closed. Failure to reopen soon also would delay last month’s personal income and spending data, due by Jan. 31. Together, those reports constitute the most widely-watched measures of household consumption, which accounts for about 70 percent of the economy. The disruptions come at a challenging time: plunging regional gauges of U.S. manufacturing and business surveys indicate a slowdown in growth, and some big-name retailers have issued warnings about mixed holiday results. While the solid job market remains a bulwark and consumers are in good shape, more — not less — information is needed to assess if the economy faces bigger-than-anticipated risks, one reason investors are nervous and Federal Reserve officials have emphasized patience in raising borrowing costs. “Job growth, income growth and low inflation are all positive for consumer spending,” so having data to confirm would be helpful, said Scott Brown, chief economist at Raymond James Financial Inc. “It could help soothe the market’s fears to some extent.” With no end in sight for the shutdown, a burgeoning concern is that data may not just be delayed, they may also not get collected as normal, Brown said. For now, investors and analysts will have to rely on a patchwork of data. The Johnson Redbook report showed December sales rose from a year earlier, though it tracks a limited sample of results. The Retail Economist‐Goldman Sachs weekly chain-store sales figures are another source. Other groups provide clues on individual sectors, such as the National Restaurant Association’s monthly index. Without the government’s retail report, it’s also tough to accurately gauge how consumers are spending on big-ticket items such as cars. Meanwhile, Fiat Chrysler Automobiles NV’s Chief Executive Officer Mike Manley said he’s “concerned” about the shutdown’s impact on the company’s efforts to introduce crucial new heavy-duty pickups.
ECB Has Missed Its Chance to Raise Interest Rates, HSBC Says
HSBC has a warning for those expecting the European Central Bank to start tightening monetary policy: the institution has missed its opportunity. Recent data “have been dismal,” Simon Wells, an economist at HSBC in London, said in a note to clients. The latest figures on Tuesday showed Germany, the euro zone’s biggest economy, only narrowly dodged a recession. France is slowing and Italy has stagnated. The only major economy bucking the trend is Spain, Wells said. HSBC joins a growing list of economists and investors who predict President Mario Draghi won’t be able to lift rates from record lows before his term ends in October. German private bank Bankhaus Lampe argued on Monday that if the ECB doesn’t tighten late this year then there’s no reason to believe it’ll be able to do so in 2020 either. The ECB, which will next set policy on Jan. 24, expects to keep interest rates at record levels at least through the summer. Draghi may address the situation on Tuesday at the European Parliament in Strasbourg. In a statement in the morning he urged governments to pursue reforms to realize the full benefits of the single currency. Wells said that’s another opportunity foregone.
Germany Dodges Recession With ‘Slight’ Growth in Fourth Quarter
Germany’s economy narrowly avoided a recession at the end of 2018 after a slump in industry raised concerns over Europe’s growth engine. There was a “slight” increase in gross domestic product in the three months through December, according to the Federal Statistics Office, which will publish official figures next month. But the quarter rounded out a year in which overall growth was the weakest since 2013. “We do not expect a minus in the fourth quarter, but see signs of a slight recovery,” said Tanja Mucha, who helps compile GDP figures at the statistics office. “We expect a small plus,” she added, cautioning that the estimate is preliminary and based on only about half the information for the quarter. Germany is the first among the world’s biggest developed nations to publish 2018 data, and the world’s third-largest exporter is an indicator for the state of the global economy. Policy makers from around the world have become more cautious about future growth, pledging to react quickly if they see momentum souring. In Europe’s largest economy, reports from industrial output to company surveys hinted at a second quarterly contraction in the three months through December. Companies including robotics maker Kuka AG and car-part manufacturer Continental AG have cited weakness in China as a risk. Annual growth was driven by a 4.5 percent surge in equipment spending, the statistics office said. Private consumption rose 1 percent last year and public expenditure was up 1.1 percent. The government posted a budget surplus of 1.7 percent of GDP. The euro was down 0.3 percent at 10:53 a.m. Frankfurt time, trading at $1.1432. The yield on German 2-year bonds declined to minus 0.606 percent. Despite ending 2018 on a weak footing, investors have been bullish on German equities so far this year as negotiations between the U.S. and China over exports appeared to warm up, reducing the likelihood of a trade war. Orders for cars and motor vehicle parts have started to reverse a summer slump triggered by new emissions tests, and rising water levels on Germany’s longest river are contributing to a recovery in deliveries. The government is also doing its part. After running significant budget surpluses for the last five years, Chancellor Angela Merkel’s coalition is planning to invest a record 151.6 billion euros ($174 billion) through 2022 in roads, railways and faster Internet. It will also ease the tax burden for households, a move that could spur consumer spending.
China Presses on With Tax-Cut Strategy as Lending Stabilizes
China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, as credit data released Tuesday showed some vindication of its gradual stimulus strategy. Further evidence of the dominance of fiscal measures emerged, as senior policy officials pledged that tax reductions on a “larger scale” are in the pipeline, amid worsening output and trade data. JPMorgan Chase & Co. economists estimate the total impact will be around 2 trillion yuan ($300 billion), or 1.2 percent of gross domestic product. That’s a departure from the infrastructure binges coupled with massive monetary stimulus that were deployed in the aftermath of global financial crisis. Beijing is trying to put a floor under the economic slowdown without another debt blowout, with some success: Credit growth exceeded expectations in December, and the central bank has managed to curb riskier shadow banking throughout the year. “At the moment the room for monetary policies is limited, and fiscal policies such as tax cuts are the crucial tool,” said Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong. The high leverage and property prices have limited the chances of massive monetary stimulus, she said. “But as a pro-growth measure, tax cuts will take effects at a slower pace compared to infrastructure binges,” she said. Last May the government cut value added taxes for manufacturing, transportation, construction, telecommunications and farm produce industries, followed by a cut in personal income taxes and the introduction of more deductions. Earlier this month, the State Council announced a $29-billion annual tax cut plan for small companies. The change of approach is being driven largely by China’s debt load, which makes funding a splurge on bridges and railways dangerous for financial stability. Against the backdrop of slowing global growth and the trade war with the U.S. though, it’s not clear whether the new approach will be enough to stabilize the economy. The government “has grasped the problem” after years of over-investment led to low efficiency and surging debts,” JP Morgan economists led by Zhu Haibin wrote in a report. The impact on growth could be modest though, they wrote as more vigorous tax collection can dampen the benefit and the transmission of tax cuts to the economy is uncertain.
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