Newsletter: The U.S. Now Has One of the Lowest Tax Burdens in the World


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Good morning. 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.
Low-Tax Nation
President Trump’s 2017 tax cuts reduced the U.S. tax burden to one of the lowest among major world economies. The Organization for Economic Cooperation and Development found the U.S. now has lower taxes than all but three countries that belong to the intergovernmental organization. The 2018 data mark the culmination of nearly two decades of tax-cutting in the U.S., starting with President George W. Bush’s tax cuts in 2001 and 2003. The net effect of fiscal policy this century has been lower taxes and larger budget deficits, Richard Rubin reports.

The U.S. trade deficit for October is expected to narrow to $48.5 billion from $52.45 billion the prior month. (8:30 a.m. ET)
U.S. jobless claims are expected to rise to 215,000 from 213,000 a week earlier. (8:30 a.m. ET)
U.S. factory orders for October are expected to rise 0.3% from the prior month. (10 a.m. ET)
Fed Vice Chairman Randal Quarles testifies on bank supervision and regulation before the Senate Banking Committee at 10 a.m. ET.
Back to Work
The U.S. employment report for November is out Friday at 8:30 a.m. ET. Here are a couple sectors to watch:
Manufacturing employment nationwide has slowed this year, perhaps in part because the labor market is increasingly tight. But other factors also seem to be at play: The global economy has sputtered, trade policy is remaking supply chains and creating uncertainty, and a strike at General Motors put a big dent in October factory employment. Might we see a rebound in November? Overall payrolls are expected to rise by a healthy 187,000, helped along by the return of more than 40,000 GM workers. But even before the strike, hiring in the manufacturing sector was decelerating, led by outright losses in Pennsylvania, Wisconsin and Michigan.

What about services? Temp worker hiring tends to jump in the early stages of a recovery and crash as the economy stumbles toward a recession. Lately, it’s looking a little weak. Temporary help employment peaked in December 2018—and has since fallen in six of the past 10 months. “Although we can only compare to two prior business cycles, this indicator bears close watching,” says Moody’s Analytics economist Maria Cosma. But this expansion, the longest on record, has shown it’s not always like other business cycles: Tried-and-true warning signals have set off false alarms during a manufacturing mini-recession from 2015-2016 and again more recently amid an uncertain global outlook and another factory slump. Manufacturing’s malaise could again be at play. An alternative explanation: With unemployment near a 50-year low, workers have the bargaining power to demand permanent positions.

A separate labor-market measure showed no November factory rebound: The U.S. private sector added 67,000 jobs last month, a sharp slowdown led by falling employment among builders, manufacturers and miners. The ADP National Employment Report shows overall private-sector employment gains averaging 151,000 this year, down from 219,000 in 2018. “The job market is losing its shine,” said Mark Zandi, chief economist at Moody’s Analytics. “If job growth slows any further unemployment will increase.” The ADP Research Institute and Moody’s Analytics produce the monthly report. Over time, ADP generally tracks the closely watched Labor Department jobs report, but month to month it doesn’t produce a reliable forecast of government numbers.

Goods vs. Services
Underscoring the divergence between sectors of the economy, U.S. service-sector activity expanded in November, a contrast to four straight months of a manufacturing slowdown. The Institute for Supply Management on Wednesday said its nonmanufacturing index grew in November, albeit at a slower pace than in October, Sarah Chaney reports. ISM’s Anthony Nieves said growth is solid, but the trade war between the U.S. and China remained a key restraint on both manufacturing and services. “If we have an end or resolution to the trade war, you’ll see both sectors have a good uptick from that,” Mr. Nieves said.

Manufacturing Counterpoint: Take a Chair
Here’s the good news: There are now more reasons to make furniture in the U.S. than at any point since the financial crisis. Crate & Barrel and Williams-Sonoma are expanding manufacturing in the U.S., and the factories of longtime furniture makers are humming.
Here’s the bad news: There aren’t enough skilled workers available to support the renaissance. Furniture companies, which for decades have been hit by competition from China, face special challenges after years of shrinking. A generation of prospective sewers and upholsterers have steered clear of the industry, leaving it heavily reliant on an aging workforce.
The turnabout for a once-beleaguered sector has been spurred in part by the internet: Consumers demand their choice of fabrics and features but don’t have the patience to wait two months for an item to arrive from Asia. At the same time, tariffs are stepping up pressure on American manufacturers to move production home, Ruth Simon reports.

China Moves from Sweatshops to Skilled Jobs
A vast labor pool once powered China’s economy. Low-paid workers kept factory costs down, while expansion-minded companies relied on college graduates for basic accounting, sales and other entry-level white-collar tasks. Now, as China’s economy matures, low-skilled labor is a spent resource. It can’t be a spur for the kind of easy growth China has enjoyed as an emerging economy, and could be a drag in a future likely to be defined by specialized services and smart manufacturing. For China’s leaders, that means a race to create a more productive and professional workforce: Beijing set a target this year to slot 15 million people, including high school graduates, furloughed workers and former soldiers, into workplace training of some kind, James T. Areddy reports.

Profit Squeeze
Investors who have shrugged off tepid earnings growth this year have leaned on the argument that the majority of S&P 500 companies have wound up beating analysts’ expectations. Morgan Stanley’s wealth-management unit isn’t sold on that argument. The money manager found in an analysis of earnings that more than a third of S&P 500 companies have posted a year-over-year decline in earnings in 2019. The last times the share of companies posting contracting earnings was that high: 2009, 2008 and 2002, all periods when the broader economy, plus the stock market, were in decline, Akane Otani reports.

I Did it My Way
The Trump administration complained a French digital tax is a unilateral, legally dubious remedy to a global problem. How ironic. U.S. steel tariffs are a unilateral, legally dubious solution to a global problem: A Chinese global supply glut. The WSJ’s Greg Ip writes that individual nations, rather than working together to rewrite international rules, are choosing to go it alone and further undermining the world-trading system.
Japan Approves Stimulus
Prime Minister Shinzo Abe’s cabinet approved a $120 billion stimulus program, Japan’s largest in more than three years, citing the same global economic risks that have led central banks in the U.S. and Europe to cut interest rates. Mr. Abe’s plan is also aimed at healing a self-inflicted wound on the Japanese economy: the October increase in the national sales tax to 10% from 8%. Retail sales fell 7.1% in October and car sales were particularly hard-hit, suggesting the tax may have led consumers to refrain from big-ticket purchases, Megumi Fujikawa reports.
Real Time Economics has launched a downloadable calendar with concise previews, forecasts and analysis of major U.S. data releases. To add to your calendar, please click here.


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