Date: May 30, 2019
U.S. First-Quarter Growth Revised Down to 3.1% Pace From 3.2%
U.S. economic growth last quarter was revised down by less than expected amid stronger consumption and exports than initially reported, suggesting the expansion was on relatively firm footing before President Donald Trump’s escalation of the trade war with China. Inflation-adjusted gross domestic product increased at a 3.1% annualized rate in the January-March period, compared with an initially reported 3.2% and analyst estimates for a revision to 3%, Commerce Department data showed Thursday. Consumer spending, which accounts for the majority of the economy, grew 1.3%, topping projections for an unrevised 1.2% though still the slowest in a year. The figures may alleviate some investor concern that the economy is losing momentum — highlighted by an inversion in part of the Treasury yield curve — and potentially help Trump as he starts his reelection campaign. At the same time, recent reports suggesting a dimmer outlook this quarter, along with the intensifying tariff conflict, are casting a shadow over an expansion poised to become the nation’s longest on record in July. Excluding the trade and inventories components that gave a boost to GDP, final sales to domestic purchasers increased at a 1.5% pace — the slowest since 2015, though revised from 1.4%. This measure, often looked to by economists as a gauge of underlying demand, suggests growth in the quarter was weaker than the headline number indicates. In addition, the report gave the first read on business earnings for the period, suggesting corporate America is facing headwinds from the trade war and the effects of Republican tax cuts may be waning. Pretax corporate profits fell 2.8% from the prior quarter, the biggest drop since 2015, and were up 3.1% from a year earlier, the least since 2017.
ECB’s de Cos Sees Downside Risks for Global, Euro-Area Growth
European Central Bank policy maker Pablo Hernandez de Cos said the global economy is facing significant risks and inflation in the euro area could remain low for some time. Hernandez de Cos, governor of the Bank of Spain, listed threats including an increase in protectionist measures, vulnerabilities in China and other emerging markets, and elevated debt levels. Europe faces additional issues including Brexit, an aging population, low productivity, and the weakness of “certain banking entities,” without identifying any institutions. “Confronting the challenges facing the European economy requires decisive action by national authorities to boost growth potential and reduce weaknesses,” Hernandez de Cos wrote in the Bank of Spain’s annual report on Tuesday. He also noted how wage increases across the euro area and elsewhere could continue to be absorbed by companies, rather than lead to price increases. This reduces corporate profit margins, but could also mean inflation remaining lower than expected for longer. Recently in the EU and other areas, “there has been an increase in salaries that, for the time being, hasn’t translated to prices,” Hernandez de Cos wrote. “Going forward, it’s unknown to what extent that transmission will take place or if, on the contrary, the impact of higher labor costs will tend to be absorbed, as in recent quarters, via a compression of companies’ margins.” Hernandez de Cos specifically called on Spanish leaders to take advantage of the economy’s robust growth rate to address the high structural deficit and debt, and the “dysfunction” in the labor market, including a high percentage of temporary workers. He also warned that some of the elements boosting the economy aren’t sustainable in the long run, including the Socialist government’s expansive fiscal policy and a decrease in Spaniards’ saving rates to a historic low. The Bank of Spain expects the economy to grow by 2.2% this year after expanding 2.6% last year.
China Puts U.S. Soy Buying on Hold as Tariff War Escalates
China, the world’s largest soybean buyer, has put purchases of American supplies on hold after the trade war between Washington and Beijing escalated, according to people familiar with the matter. State-grain buyers haven’t received any further orders to continue with the so-called goodwill buying and don’t expect that to happen given the lack of agreement in trade negotiations, said the people, who asked not to be named because the information is private. Still, China currently has no plans to cancel previous purchases of American soybeans, the people said. President Donald Trump escalated his trade war with China earlier this month, ramping up tariffs on about $200 billion of Chinese goods, prompting Beijing to retaliate with further tariffs of its own. Trump and his counterpart Xi Jinping are expected to meet again at the end of June for the G-20 summit, when some analysts predict a potential resolution. Soybean futures in Chicago slumped to a 10-year low earlier this month as the tensions peaked. Since then, prices rebounded as a deluge of rain roils U.S. plantings. Government data indicates China bought about 13 million metric tons of American soybeans after the countries agreed to a truce in December, in a move that showed goodwill toward getting the trade dispute resolved. While U.S. Agriculture Secretary Sonny Perdue said in February that China had pledged to buy an additional 10 million tons of American soy, purchases have now stopped. Data from the U.S. Department of Agriculture show that China is yet to take delivery of about 7 million tons of U.S. soybeans that it has committed to buy in the current marketing year.