Newsletter: Has the Global Economy Already Bottomed Out? – Real Time Economics

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On Target
China’s economic growth slowed to 6.1% last year as sagging trade and business confidence pulled the closely watched reading to its lowest level in nearly three decades. The slowdown rippled through many sectors of the Chinese economy and was made worse by the Trump administration’s trade pressure and tariffs. Even so, the growth rate fell within the government’s target of 6% to 6.5% for 2019. China’s official statistics bureau described the national economy as being “generally stable” last year. The government is counting on improving consumer confidence and consumption to play a major role in boosting growth this year. But private economists caution that growth may slow further, possibly falling below 6%, James T. Areddy reports.

WHAT TO WATCH TODAY
U.S. housing starts for December are expected to tick up to an annual pace of 1.37 million from 1.365 million a month earlier. (8:30 a.m. ET)
U.S. industrial production for December is expected to fall 0.3% from the prior month. (9:15 a.m. ET)
The University of Michigan preliminary consumer sentiment index for January is expected to tick up to 99.5 from 99.3 at the end of December. (10 a.m. ET)
The U.S. job openings and labor turnover survey for November is out at 10 a.m. ET.
The Philadelphia Fed’s Patrick Harker speaks on the economic outlook at 9 a.m. ET and Fed Vice Chairman Randal Quarles speaks on bank supervision at 12:45 p.m. ET.
The Baker Hughes rig count is out at 1 p.m. ET.
TOP STORIES
Smoother Sailing
China’s economy looked pretty shaky last year. Heard on the Street’s Nathaniel Taplin says it appears poised for a smoother ride in 2020. China fought the U.S. to a draw on the trade war, exporters’ profits are rebounding, and the labor market is stabilizing. If 2019 proved anything, it is that U.S. pressure alone—without the help of allies—can’t completely derail China’s economy. China’s export sector was already recovering before Wednesday’s trade truce, thanks to an uptick in the global electronics industry. The real impediments to growth lie within: in a rickety financial sector and statist leadership which remains wary of market-oriented reforms.

Longer term, China is going to struggle with demographics. The country’s birth rate fell to its lowest since the formation of the People’s Republic of China 70 years ago, the BBC reports. The prospect of fewer and fewer workers to support retirees amid a rising median age is looming large over the Chinese economy.
In the U.S., the trade deal with China is likely to provide extra fuel for growth in 2020 and prompt a pickup in business investment, economists surveyed by The Wall Street Journal said. The survey also found most economists expect U.S. growth to continue at a slow-but-steady pace this year. On average, forecasters expected gross domestic product would expand 1.9% this year, measured from the fourth quarter of 2019 to the fourth quarter of this year, compared with an anticipated 2.3% in 2019, Harriet Torry reports.

I Came in Here for a Special Offer
Consumers headed into 2020 on a solid footing, driving up retail sales in the final month of the holiday season. Solid gains in nearly every category offset a drop in motor-vehicle sales. Consumer spending was the main driver of economic growth through much of 2019, as businesses pulled back on investment. Headed into 2020, the fundamentals underpinning consumer spending—low unemployment and rising incomes—remain solid, Harriet Torry reports.
Heard on the Street’s Justin Lahart injects a note of caution: Consumer spending, while decent, softened in the final months of 2019. For this year, investors shouldn’t expect much improvement and shouldn’t be surprised if spending softens further. The boost from lower interest rates last year has likely passed. And in general, Americans have been more cautious when it comes to spending since the financial crisis, putting aside more of what they earn. Absent a substantial jump in the pace of hiring or wage growth, it is hard to see spending revving up.

The Outlook
The United Nations is a bit of a Debbie Downer. It’s annual forecast estimates global economic growth in 2019 at the slowest pace in a decade, expects only a modest rebound in 2020 and cautions that even its rather weak outlook is at risk. Some warnings: Trade policy remains uncertain, monetary policy may have reached its limits and further loosening could endanger financial stability, and climate-related catastrophe appears increasingly likely. “Any one of the downside risks is likely to aggravate other risks, potentially derailing the global economy,” the report says.
Not all indicators are so dour. Heard on the Street’s Jon Sindreu writes there are tentative signs that a global rebound was already on its way—even before the latest trade truce. Leading indicators tracked by the Organization for Economic Cooperation and Development as a guide to turning points in Western nations’ business cycles now seem to place the low point for economic activity in September of last year.

Climate Risk
Climate change’s economic impact is no longer theoretical. It can’t be directly blamed for any single extreme weather event, including Hurricane Maria, California’s wildfires or Australia’s bushfires. But it makes such events more likely. “They are starting to be more than tail events, they’re starting to affect economic outcomes,” said Robert Kaplan, president of the Federal Reserve Bank of Dallas. Climate crises in the next 30 years may resemble financial crises in recent decades: potentially quite destructive, largely unpredictable and, given the powerful underlying causes, inevitable, Greg Ip writes.

WHAT ELSE WE’RE READING
Hourly wages for the lowest-paid workers are rising at the fastest pace in more than a decade. That might not translate into a higher standard of living. “Here’s the rub: the median wage in the first quartile is still low—$11.50 in 2019, or 55% of the overall median wage. Moreover, these are hourly wages before taxes and transfers. … Around 46% of these individuals are in households with children. To the extent that they also participate in means-tested public assistance programs, the relative increase in their family’s standard of living could be much less than the size of their pay raise would suggest,” the Atlanta Fed’s John Robertson and Alex Ruder write in a blog post.
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