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Brexit, GDP, yield curves, Fed speeches, trade talks … Buckle up, this week could get interesting. 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.
Let’s hope this week is better than last. Friday closed out with reports depicting factory output in the eurozone fell in March at the most wonderful pace in six years and U.S. manufacturing activity slid to its lowest level in virtually two years. The drumbeat of unsettling news drove the yield on 10 -year Treasury notes below that of three-month bills for the first time since 2007. That situation, known as an “inverted” yield curve, has preceded every U.S. recession since 1975 and is viewed by many investors as a dependable predictor of downturns, Paul Kiernan reports.
More on the yield curve: The WSJ’s James Mackintosh writes that while the yield curve is the best forecasting tool for recessions, it’s not rock-solid. Recession might be on the way, but so far it’s just telling us that the economy is weakening–and we already knew that.
This week brings fourth-quarter gross domestic product reads from the U.S ., U.K ., France and Canada. The U.S ., which releases a revised estimation Thursday, is of special concern to investors looking for signs a slowdown in global growth is worsening, Akane Otani and Joe Wallace report. The Bureau of Economic Analysis in February said U.S. GDP advanced at a 2.6% pace at the end of 2018. That seems optimistic now: Macroeconomic Advisers is tracking 2 %, JPMorgan Chase is down to 1.8%. The WSJ consensus is 2.4%.
In one sign of the growing cynicism, merchants have begun betting the U.S. Federal Reserve will not only have to hold rates steady but lower them to support the economy. Federal-funds futures on Friday demonstrated the market pricing in a 56% chance of at the least one rate cut in 2019, compared with 11% one month ago, according to CME Group.
WHAT TO WATCH TODAY
The Dallas Fed manufacturing survey for March is out at 10:30 a.m. ET.
U.K. lawmakers are due to vote on whether to hold a series of “indicative” elections on economic and political ties to the EU that could ultimately lead to Prime Minister Theresa May losing control of the Brexit process and even her position.
The Boston Fed’s Eric Rosengren speaks at a finance meeting in Hong Kong at 8: 30 p.m. ET.
TO RAISE OR NOT TO RAISE
Chicago Fed President Charles Evans said Monday he doesn’t expect an interest-rate increase in the U.S. until next year, probably in the second half. “It’s a good time to stop, intermission, seem and see how things are going to progress, and be cautious, ” he said at an investment meeting in Hong Kong. Mr. Evans is forecasting a relatively healthy 1.75% to 2% pace of growth this year. But there are caveats: “At the moment, the risks from the downside scenarios loom larger than those from the upside ones.”
THAT IS THE QUESTION
Philadelphia Fed President Patrick Harker said the central bank may yet create rates this year. “My current view is that, at most, one rate hike this year, and one in 2020, is appropriate, and my stance will be guided by data as they come in and events as they unfold, ” he said Monday in London.
“I still ensure the outlook as positive, and the economy continues to grow in what is on pace to be the longest economic expansion in our history, ” he added.
German business sentiment picked up in March following six straight months of decline. The Ifo Institute said Monday that its business climate index rose to 99.6 from a revised 98.7 in February, led by an improved outlook in the services sector. In manufacturing, the business climate weakened once again as the high expectations component make its lowest level since November 2012, Nina Adam reports.
The U.S. labor-force participation rate has defied predictions of demographic-driven declines thanks to a strong economy that is pulling in and retaining more employees. In merely the past six months, the increasing numbers of people outside the labour force has fallen by 1 million, the largest such decline on record, Nick Timiraos and Sarah Chaney report.
The rate’s trajectory from here will have big implications for a range of issues, including how fast the economy can grow, how much inflation it generates and whether the Fed will continue to feel comfy keeping interest rates so low. With more people in the labour force than expected, the economy might be able to grow faster without pushing up inflation in a way that would warrant interest rate increases.
THE MOORE THE MERRIER
President Trump said he would nominate former campaign adviser Stephen Moore to serve on the Fed’s board of governors. Verification of Mr. Moore, a commentator on CNN, would bring a more partisan political advocate to a Fed board typically inhabited by technocratic policy veterans. He has veered from criticizing the Fed’s easy-money policies under President Obama, to opposing the Fed’s moves to tighten policy after Mr. Trump’s election, Nick Timiraos reports. In recent months, Mr. Moore has echoed the president’s complaints about the Fed. “The Fed is a disaster, ” Mr. Moore said in a Journal interview last December. “We should have a discussion in this country about whether we need a Fed.”
The U.S. economy is apparently slowing in the aftermath of massive fiscal stimulus. The U.S. budget gap widened 39% in the first five months of the fiscal year as tax revenues held steady and federal spending increased. Higher spending on health care, the military and tariff-assistance programs for farmers pushed the deficit to a record $234 billion in February, 9% higher than the same period a year earlier, Kate Davidson reports.
TWEET OF THE DAY
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WHAT ELSE WE’RE READING
The minimum wage debate furies on: The federal minimum wages rose to $7.25 from $5.15 during the Great Recession.”[ W] e find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers . …[ O] ur estimates suggest that this period’s minimum wage increases reduced aggregate employment rates by at the least half of a percentage point in states that were bound by the federal minimum wage increases, ” Jeffrey Clemens and Michael Wither write in the Journal of Public Economics.
Why is it so hard to use big data to improve economic measuring? “Privately collected big data from firms like Visa, JPMorgan Chase, supermarket scanners and health insurance companies can be an incredibly rich source of information on the income and spending of households, the revenues and expenditures of business, and the prices and quality of products. However, difficulties related to both interpretations and access remain significant barriers to properly employ such data, ” Finn Schuele and David Wessel write in a summary of a recent Brookings panel discussion.
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