U.S. and China Agree in Principle on Path to End Trade War… The two sides agreed to remove some tariffs in what is being called phase one of the end of the trade war.
What it means – The two sides haven’t released details, but Chinese Commerce Ministry Spokesman Gao Feng said that both sides have agreed to remove some of the additional tariffs in phases. This agreement was a condition for the Chinese to agree on another round of negotiations. Still missing is the critical agreement to discontinue corporate espionage and respect intellectual property rights. This issue should have been a condition of China’s admittance to the World Trade Organization.
The development boosted equity markets around the world. But the potential end of the trade war brings up a question. How much does it matter? The U.S. raked in a record $7 billion in tariffs in September, which sounds like a lot but is just 1.8% of the $374 billion in total taxes collected by the government that month.
Have you refused to purchase something or changed your spending habits since the tariffs went into effect? Mexico, Viet Nam and other Asian countries have eagerly stepped in to replace the damaged Chinese manufacturing supply line. With the Chinese exporters eating some of the costs and American importers taking some of the weight, American consumers didn’t feel a heavy burden. As a result, U.S. consumers have experienced little in the way of shortages or price hikes.
When the tariffs end, Chinese and American companies will make a little more, but it’s doubtful economic activity will jump. It may be a long time before China is able to recapture the production lost to other countries.
October Auto Sales Down 5.7%… U.S. auto sales fell from an annualized rate of 17.5 million in September to 16.5 million in October, missing estimates of 17 million.
What it means – Industry experts have been forecasting slower auto sales for a couple of years, noting that we bought more than 17 million cars in both 2017 and 2018. Eventually, we just don’t need that many. But the weak pace in October took some by surprise as they had forecast 2018 sales to be 16.9 million. The weakness in auto sales last month should show up in the retail sales report next week. If auto sales continue to slip in November and December, it could push down the fourth-quarter GDP.
Be thankful we aren’t in Germany where Volkswagen (VWAGY) sales recently fell by 18% – three times worse than here at home. On top of VW’s public relation problem of fraud, tightening emission standards are compounding VW’s slowing sales.
September Factory Orders Fell 0.6%… The report was just a touch weaker than the -0.5% expectation.
What it means – The story on factory orders remains the same. As Boeing (BA) continues to struggle with its 737 Max, aircraft orders have stalled, which brings down the headline number. But in the details, non-defense orders excluding aircraft are also weak, down 0.6%. That shows businesses aren’t spending their cash on additional capacity, which means they don’t see a huge return on additional investment in the months to come.
Third-Quarter Labor Costs Rose and Productivity Fell… Labor costs increased 3.6% last quarter, much higher than the 2.2% estimate, and productivity fell 0.3% on expectations of a 1.0% rise.
What it means – It’s all about how much we work to produce goods. Last quarter, we worked more and were paid more than the increase in output over the same time period. The result was lower productivity. Part of the problem might not be on the factory floor. Slowing demand, as shown in factory orders, can drive down the productivity measure as goods sold don’t match up with increased production. That situation won’t last. Either demand must pick up or companies will produce less. Given that businesses aren’t increasing their investment, it looks like lower production lies ahead.
September Eurozone PPI Up 0.1%, Down 1.2% Over Last Year… The numbers were in line with expectations and marked the seventh consecutive decline in growth and the weakest reading in three years.
What it means – If businesses aren’t paying more for stuff, there’s no reason to think consumers will, either. The story of September producer prices in the eurozone shows that inflation is dead for the moment, even as the central bank lowers the punitive interest rate on big deposits to negative 0.50% and brings back bond purchases. The eurozone is quickly going the way of Japan in proving that monetary policy is ineffective at stoking inflation, but they’ll keep trying!
Thirty years in Japan and ten in Europe should be enough evidence that quantitative easing and lowering interest rates does not stimulate consumption and revive an economy. However, for the academics at the Fed, the economic model can’t be wrong. It just needs more time for the rate cuts to work.
11,000 Scientists Sign on to Climate Change Paper Demanding Immediate Action, Including Population Controls… In a paper published in Bioscience, 11,000 scientists signed on to support the case for a climate emergency. Unsurprisingly, they found that wealthy nations are the biggest culprits as they drive gas-guzzling cars and eat meat sourced from ruminating animals (cows).
To avert a climate disaster, they recommend changes in six areas: food, nature, energy, short-lived pollutants, economy, and population. It’s the last one that will catch your attention. The group calls for ending population growth and, in a perfect world, reducing the population while maintaining a framework that ensures social integrity.
They didn’t define the last part, but it likely means a framework they design.
No word on the scientists giving up their cars or refusing to ride on airplanes or eat red meat or agreeing to not have children themselves.
Data supplied by Dent Research/Delray Beach Publishing
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
Our plan is “the plan will change.”
What is your plan?
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