Date: September 24, 2018
Slew of Positive Reports Show U.S. Economy Still on Solid Track
A string of reports on Thursday showed the labor market is getting stronger, consumers are increasingly optimistic and manufacturers are expanding, adding to signs that gross domestic product remains on track for a solid performance in the third quarter. Filings for unemployment benefits unexpectedly fell for a third straight week to a new 48-year low, as businesses hold on to existing staff amid a shortage of skilled workers, according to Labor Department figures. That’s a good sign for the September payrolls report: The claims data, covering the week containing the 12th of the month, coincide with the reference period for the Labor Department’s survey for the monthly figures. The Bloomberg Consumer Comfort Index showed sentiment advanced last week to a fresh 17-year high on brighter views of the economy, personal finances and the buying climate. In addition, the report’s monthly economic expectations index rose to 57.5 in September, the highest since March 2002. A gauge of manufacturing from the Federal Reserve Bank of Philadelphia rebounded by more than projected in September from the lowest level in almost two years, as orders, shipments and employment picked up. At the same time, price pressures are easing, as a gauge of input prices fell to the lowest since January. Some of the news was less upbeat: Sales of previously owned homes were unchanged in August from the prior month at a 5.34 million annual pace, trailing economists’ estimates, data from the National Association of Realtors showed. Even so, that ended a streak of four consecutive monthly declines. Home prices remain high, though slowing sales led to the first annual rise in inventory in three years. The economy is nonetheless facing some headwinds, including an intensifying trade war that could weigh on consumer moods and lift inflation as the Trump administration proceeds with tariffs on $200 billion in Chinese goods starting next week. The Federal Reserve is expected to raise interest rates next week, which could boost borrowing costs for businesses and consumers.
Draghi Urges New Euro-Zone Fiscal Tool to Keep Economy Stable
European Central Bank President Mario Draghi called for a euro-area fund to complement monetary policy, renewing his plea to governments to strengthen the currency bloc before another crisis strikes. The ECB chief said that while nations should pursue sound domestic fiscal policies, that’s not not always enough to withstand erratic financial-market reactions, and that there’s a case for public sharing of risk. “We need an additional fiscal instrument to provide stabilization,”’ he said in a speech in Berlin. “There ought to be an instrument that complements monetary policy in delivering macroeconomic stability both at the euro-area level and, crucially, in each of its member states.” The fact that Draghi stepped up his rhetoric in Germany’s capital is significant, as the country has been a key driver behind the focus on reducing euro-area risks — for example cutting bad loans — before introducing risk-sharing projects such as common deposit insurance and a joint fund. The ECB and many European leaders have long acknowledged the need for some kind of fiscal capacity to bolster the economic union, but without much progress. Heads of state are due to meet in Brussels for a summit next month, though their focus will be on more pressing issues such as U.S. trade threats and Brexit. While they aim to strike a deal on key elements for deepening the economic and monetary union in December, talks on a fiscal tool remain far from a consensus. Draghi said the precise design of any such instrument is still up for discussion, but it should fulfill two conditions — it should be “adequate to its task” and it should be designed so as to contain moral hazard.
China Cancels Trade Talks as New U.S. Tariffs Loom
China has scrapped planned trade talks with the U.S. and is unlikely to sit down with Washington until after November’s mid-term elections, according to people familiar with the situation. The decision to call off a planned delegation next week comes as President Donald Trump signals he’s prepared for short-term pain for the U.S. economy by ramping up the trade war, in the pursuit of what he sees as the long-term gains from taking on China. The White House had no immediate response to China’s latest move. Yet hours before the Wall Street Journal first reported that Beijing had scrapped plans to send Vice-Premier Liu He and a mid-level delegation to Washington, a senior U.S. official told reporters that the president believes inaction on China will ultimately leave the economy and consumers worse off. In addition to new tariffs on $200 billion of Chinese goods set to go into effect Sept. 24, the U.S. State Department sanctions against China’s defense agency and its director on Thursday contributed to the ultimate decision to cancel the talks, the people said. “It would be ‘asking for an insult,’ if China went ahead with trade talks after the US announced new tariffs and sanctions,” Shi Yinhong, a professor of international relations at Renmin University of China, said Saturday. “In the long run, there will be talks, because the trade war won’t last for thousands of years.” In his push for what he calls a level playing field in dealing with China, Trump slapped the new tariffs on imports from China and threatened more if Beijing retaliated. On Aug. 18, China said it would impose levies on $60 billion worth of U.S. goods effective Sept. 24. The new tariffs brought “new uncertainties” to China-U.S. negotiations, Gao Feng, a spokesman for China’s Ministry of Commerce said, when answering a question at a press conference on Thursday on whether the countries would have a new round of trade talks. He used exactly the same wording the ministry used in an earlier statement. The Ministry of Commerce and the Ministry of Finance didn’t respond to faxes inquiring about the matter on Saturday. U.S. industry has widely pushed back against the Trump administration’s use of tariffs to force changes to China’s economy, and companies from Walmart Inc. to Gap Inc. and Samsonite International SA have said they’re prepared to raise prices if the new tariffs bite into their business.