U.S. – China Trade Talks Take a Step Back… President Trump contradicted the Chinese, saying no deal had been reached, and the talks stalled over Chinese purchases of U.S. farm goods.
What it means – The Chinese might have been a bit optimistic when they announced last week the two sides had reached an agreement in principle. Trump, Kudlow, and others publicly said that’s not true, and that the talks broke down over Chinese purchases of U.S. agriculture. The U.S. wants the Chinese to commit to certain levels, while the Chinese want flexibility in case their economy weakens.
The upshot is, no deal. At least, not yet. It looks like we’re down to the small details, which is a good sign. There’s no way to predict a timeline, but even with the recent setback it looks like they’re making progress. The big ones – protecting intellectual property rights and ceasing corporate espionage – must still be resolved.
House of Representatives Begin Public Impeachment Hearings… The Republicans added the suspected whistleblower to the list of witnesses, as well as Hunter Biden. It seems unlikely that Rep. Adam Schiff (D-CA), who is leading the committee, will allow them to testify. The hearings are to determine if there is any evidence to justify creating articles of impeachment. So far, nada.
What it means – Did you hear about the impeachment? Did you hear it so much it made you want to change the channel? The facts don’t appear to be in dispute. The country would be better served if the House would hold its vote, which seems likely to go in favor of impeachment, and then kick it over to the Senate, where they’re likely to vote it down. With the outcomes all but foregone conclusions, the time in between is wasted. Our legislators aren’t legislating, they’re staking out political turf, and we’re paying for it.
U.S. Deficit Up 34% in October Over Last Year… The federal government spent $134 billion more than it took in during October, up from the $100 billion deficit in October 2018.
What it means – We’re well on our way to a trillion-dollar deficit for the 2020 fiscal year, which runs from October 2019 through September 2020. Deficits were already at the half-trillion-dollar mark when President Trump took office. His tax reform, which cut revenue, and increased spending put us on the path to 13-digit annual deficits during a time of modestly growing GDP. No one seems to care, but it seems worth mentioning.
Inflation Shoots Up 0.4% in October… For the year, inflation is up 1.8%. Excluding food and energy, prices are 2.3% higher than this time last year.
What it means – Rebounding gasoline prices gave overall inflation a nudge higher, but even excluding food and energy, prices were noticeably on the rise thanks to healthcare. Prices for medical services rose a full percentage point last month and are more than 5% higher on the year. That’s a tough pill to swallow for retirees who will get a modest 1.6% COLA bump in their Social Security checks starting in January.
This isn’t the type of inflation the Fed wants. The central bank would rather see overall prices move up as companies lift prices due to strong demand and then turn around and lift wages. But the Fed will take what it can get. With core inflation at 2.3%, we’re right in the Fed’s target range, so don’t expect a rate cut in December.
German and Japanese GDP Clock in at 0.1% for the Third Quarter… Germany posted growth a touch higher than expected, while Japan came in on the weak side. Both economies barely budged in the third quarter.
What it means – Germany derives 40% of its GDP from exports, so the trade wars and general global slowdown are tough on the Northern European country. The fact that auto sales are slowing around the world and Germany’s biggest car manufacturers are still dealing with the emissions scandal doesn’t help. For the year, Germany’s GDP expanded by a modest 0.5%. On the bright side, everyone expected German growth to slip 0.1%, which would have put the country in a technical recession. The barely positive reading was a pleasant surprise.
Japan expected growth of 0.2% or so, which made the 0.1% reading a disappointment. For the year, Japan’s economy is just 1.3% higher. Like Germany, Japan depends on exports, so the global economy is a drag on its GDP.
Even when the U.S. and China sign a trade deal, there’s no assurance or expectation that the global economy will suddenly expand at a faster pace. The IMF has been lowering its growth expectations, not raising them. Exporting countries, including China, face a tough 2020.
Retail Sales Up 0.3% in October, Up 0.1% Less Autos and Gas… Auto sales increased 0.5% last month even as overall auto sales remain lower on the year. Sales excluding autos and gas fell below the expected 0.3% growth.
What it means – The retail sales figures will give some investors pause as we head into the peak of holiday shopping. Sales at clothing stores fell 1% last month while furniture stores posted a 0.9% drop. Even sporting goods dipped 0.8%. The big tell is restaurants which posted a 0.3% decline. If Americans aren’t willing to spend more eating out, then it’s unlikely they’ll bump up spending in other categories.
Still, it was just one month. Retail spending remains strong for the year and was the main driver of GDP in the third quarter. It’s more likely that October retail sales are a temporary reprieve than a change in trend. While unemployment remains near record lows, consumers will shop. Walmart (WMT) proved that this week when it posted great earnings.
Williamson College of the Trades Prepares Students for Actual Work… Established in the 1880s as a college for poor boys, Williamson in Media, Pennsylvania has remained true to its mission. The school accepts only young men from modest backgrounds and educates them in vocational trades. The residential programs require students to rise early and present themselves in coats and ties for inspection. More than 70% of the students graduate in three years, and 98% of the graduates find employment. Many of the jobs they step into pay from $75,000 to $100,000.
The kicker? Tuition is free. Due to generous donations and an endowment, Williamson can offer a great education to an at-risk population and put them on a path to the middle class. It might not be a model for every community in the nation, but it’s a better story than many coming out of the halls of four-year colleges today.
Data supplied by Dent Research/Delray Beach Publishing
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