Date: May 28, 2019
U.S. Economic Outlook Dims as Capital Goods Add to Weak Data
The outlook for the U.S. economy is dimming after a report showed below-forecast business-equipment orders, adding to a string of weak data in other sectors. JPMorgan Chase & Co. cut its forecast for second-quarter economic growth to 1% from 2.25% and said the Federal Reserve’s next interest-rate move is equally likely to be a hike or a cut, instead of an increase, chief U.S. economist Michael Feroli said in a note Friday. Oxford Economics lowered its estimate to 1.3% from 1.6%, while Barclays Plc’s tracking forecast went down to 2% from 2.2%. Friday’s report showing lower capital and durable goods orders in April — in addition to earlier data on retail sales, housing and manufacturing — suggest the economy is losing momentum. That’s even before President Donald Trump ratcheted up his trade war with China this month by raising tariffs on some goods and threatening more levies. “The concern is that firms just don’t have a strong sense of what the rules of the game are going to be, and that kind of uncertainty in principle, and in practice, can cause firms to be more cautious about undertaking long-term investments,” Feroli said by phone. “So that is certainly a risk we’ve been worrying about, which might be starting to manifest itself in the data.” IHS Markit’s Macroeconomic Advisers lowered its tracking estimate for second-quarter growth by 0.2 percentage point to 1.7%, while the Atlanta Fed’s GDPNow tracker stood at 1.3%.
Euro-Area Confidence Improves for First Time in Almost a Year
Euro-area economic confidence unexpectedly improved in May, snapping an almost yearlong streak of declines when the region was battling through a host of struggles. The improvement was driven by industry and the strongest increase in production expectations in more than six years. That was despite continued negativity about export orders and the business climate. A separate report added to the upbeat news, with lending to households and companies picking up in April. The figures will give hope to those predicting a pickup in momentum in the second half of the year. The confidence report from the European Commission showed stronger figures in Germany, France and Italy, the euro area’s three largest economies. Loans to euro-region households climbed 3.4% from a year earlier, the fastest pace since January 2009. Still, in addition to international trade tensions that are weighing on sentiment and crimping corporate earnings, European businesses are grappling with slower global momentum and localized challenges like the structural change in the German car industry. At the European Central Bank, the record of policy makers’ last meeting showed a number of officials losing faith in the idea of a return of more solid growth. A fresh batch of ECB growth and inflation forecasts will be unveiled next week, when rate-setters will decide if they warrant any addition stimulus to grease the wheels for the economy.
China’s Slowdown Is Global Economy’s Nightmare, Reinhart Says
Beyond trade-war risks and an uncertain monetary policy outlook, looming large for the global economy is the threat that China’s slowdown could be worse than currently seen, said Harvard University economist Carmen Reinhart. “If you were to ask me what would be really bad global news, it’s that the slowdown in China is deeper and longer-lasting, because that carries over to so many things,” Reinhart, who specializes in international finance, said on the sidelines of an Asia investment conference hosted by Nomura Holdings Inc. in Singapore on Tuesday. The U.S.-China trade war shows no signs of letting up, with the global economy in for a $600 billion hit if the conflict worsens. Even before the latest escalation, China’s economy was losing momentum, as reflected by weaker-than-expected data in April. Reinhart, who’s particularly well-known for her work with Harvard colleague Kenneth Rogoff on the last financial crisis, said central banks like the Federal Reserve and European Central Bank are likely to be “patient,” as signs point to a possible U.S. slowdown in the second half, yet still robust labor markets. She said it’s “premature to say that central banks’ attitudes toward inflation have shifted in any dramatic way.” While much of the trade-war focus has been on supply chain shifts, how uncertainty will impact investment, and the modest price effects of the tariffs, “the trade shock is like an adverse supply shock,” and “it could mean there’s more upside risk on the inflation side that’s been really dismissed.”