Newsletter: State of the Economy – Real Time Economics

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My Way or the Huawei?
The White House is working with U.S. technology companies to create advanced software for next-generation 5G telecommunications networks as it seeks to blunt the dominance of China’s Huawei Technologies. The plan would build on efforts by some U.S. telecom and technology companies to agree on common engineering standards that would allow 5G software developers to run code on machines that come from nearly any hardware manufacturer. That would reduce, if not eliminate, reliance on Huawei equipment. “The big-picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms, principally,” White House economic adviser Larry Kudlow said. “That also could include Nokia and Ericsson because they have big U.S. presences.” Huawei won’t be easy to unseat as the global leader. It is the world’s top seller of telecom equipment, and has won fans globally—including small rural telecom carriers in the U.S.—for the quality of its equipment and technical support, Bob Davis and Drew FitzGerald report.

WHAT TO WATCH TODAY
European Central Bank President Christine Lagarde speaks in Paris at 7:15 a.m. ET.
The ADP employment report for January is expected to show a net gain of 150,000 jobs from the prior month. (8:15 a.m. ET)
The U.S. trade deficit for December is expected to widen to $48.3 billion from $43.09 billion a month earlier. (8:30 a.m. ET)
IHS Markit’s U.S. services index for January is expected to hold steady at 53.2. (9:45 a.m. ET)
The Institute for Supply Management’s nonmanufacturing index for January is expected to hold steady at 55.0. (10 a.m. ET)
Federal Reserve governor Lael Brainard speaks on payment innovation at 4:10 p.m. ET.
TOP STORIES
Delayed Gratification
White House National Economic Council Director Larry Kudlow said fallout from the deadly coronavirus would delay—but not derail—the economic boost the U.S. anticipated from the first phase of the trade deal with China. Last month, President Trump and China’s Vice Premier Liu He signed a deal that called for China to increase its purchase of U.S. goods and services by $200 billion over the next two years. Mr. Kudlow and others say the purchases could be affected by the economic strains on China, where business and industry has been widely idled as efforts continue to prevent the virus from spreading, Katy Stech Ferek and William Mauldin report.

Two major U.S. airlines suspended flights to Hong Kong because of coronavirus. United Airlines and American Airlines said they were halting flights until Feb. 20, citing a lack of demand. Both airlines and several other global carriers had previously halted service to the Chinese mainland. More Chinese cities, meanwhile, imposed restrictions on movement meant to help contain the fast-spreading pathogen that has killed nearly 500 people.
OPEC and its allies are debating more aggressive oil output cuts than previously considered after reviewing new data showing the coronavirus’s deepening impact on global oil demand. The virus has already contributed to a sharp decrease in demand for crude, driving oil prices to bear-market territory on Monday. One projection, which assumes the virus outbreak will be severe and last six months, suggests the market would be oversupplied by 1 million barrels a day in the second quarter if the cartel and its allies fail to act, Benoit Faucon and Summer Said report.
Investors appear to be repricing virus-related uncertainty. Global stocks rose Wednesday and oil posted its biggest gain in more than a month, further erasing earlier losses.

Raining on the Parade
Macy’s plans to close 125 department stores over the next three years, an admission that a fifth of its locations cannot thrive as shoppers buy more online and make fewer trips to malls. The company is also cutting roughly 2,000 corporate jobs, or 10% of corporate and support staff, and closing several offices. Macy’s will keep running about 400 of its namesake stores. Once the backbone of America’s shopping malls, department-store chains like Macy’s, J.C. Penney and Sears have been losing customers to the convenience of Amazon.com and the discounts found at off-price chains like T.J. Maxx, Suzanne Kapner reports.

Tiny Bubbles
Tesla’s shares rose 14% Tuesday to $887.06. They have surged 56% in the past week and have nearly quadrupled since early October. Those outsize gains don’t match Tesla’s more modest fundamentals, which include annual losses. They do, however, resemble any number of other assets that have experienced prolonged bubbles, including tech stocks of the dot-com era; oil in 2008; bitcoin in 2017; and any number of other assets that traded at excesses—going all the way back to the South Sea Bubble of the 1720s, Paul Vigna writes.

Boom Time
A U.S. construction boom is driving up lumber prices. Lumber futures are up more than a third from lows reached last June, when bad building weather and overstocked yards caused an unseasonable slump. Though relatively high, current prices are still well below a May 2018 peak spurred by wood-boring beetles, wildfires and tariffs on Canadian imports, Ryan Dezember reports.

State of the Economy
President Trump kicked off his State of the Union address highlighting economic gains under his administration and trying to draw a contrast with the Obama administration. “Jobs are booming. Incomes are soaring. Poverty is plummeting,” he said. “The years of economic decay are over.” The U.S. economy has been growing since the end of the last recession in 2009, albeit at a pace that lagged behind previous economic expansions. Mr. Trump argued that his policies have given the economy an extra boost, Catherine Lucey and Lindsay Wise report.

WHAT ELSE WE’RE READING
Pandemics are breeding grounds for trade wars. “As coronavirus continues to spread outward from China, it’s tempting to see this as a uniquely modern problem, born of the unprecedented ease with which goods, information and people move around the world. In reality, such outbreaks have flourished for centuries thanks largely to a single factor: international trade, the original pandemic superhighway. … In the 20th century, the vexed historical relationship between trade and disease largely fell away, save for a few isolated episodes. But what’s happening now suggests that this relationship may be resurgent,” the University of Georgia’s Stephen Mihm writes at Bloomberg Opinion.
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