This Week In The Economy: Encouraging China GDP Data, How Much Will Boeing’s Woes Impact U.S. Exports? The Lukewarm U.S. Economy

Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.

China’s Q1 Economic Growth Allays Slowdown Concerns

China this week reported decent growth in economic activity in the first quarter, an indication that perhaps fears of an pronounced slowdown in the world’s second largest economy might be premature.

According to a preliminary estimate by the National Bureau of Statistics, GDP increased by 6.4% year-over-year, the same rate as Q4 2018 but slightly lower when compared to the same quarter last year. Investment in fixed assets (items purchased for long-term use such as land, buildings, and equipment). grew by 6.3 percent y/y, and within that private investment jumped 6.4% in Q1.

Factory production increased 6.5% from last year, with the value added by high-tech industries specifically, up 7.8% y/y. A separate report released later in the week showed manufacturing output in China accelerated in March alone, surging by 8.5% compared to the same month a year ago.

OECD Warns of Difficult Times Ahead For China

The above data dropped in the same week that a report by the Organisation for Economic Co-operation and Development (OECD) blamed slowing investment for the recent “slackening” in China’s economic growth. It said excess capacity in a number of industries weighs on business investment, while infrastructure investment has also weakened as local governments’ borrowing has been reined in.

Nevertheless, “Even though it is slowing down driven by structural factors such as shrinking of the working-age population, economic growth remains robust by international standards,” the OECD said.

At the same time however:

“ Difficult challenges remain, however, especially the high level of total debt, which exceeds that of many OECD countries.”

U.S. Trade Deficit Narrows In Feb, Short-lived Jump In Exports?

The U.S. trade deficit narrowed to $49.4 billion in February from $51.1 billion in January, as the increase in exports outweighed the more measured rise in imports.

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February exports were $209.7 billion, $2.3 billion more than January. February imports were $259.1 billion, only $0.6 billion more compared to January imports.

The growth in exports was aided by a $2.2 billion jump in orders for civilian aircraft — a category that is unlikely to provide as much support in future months due to decreased production and a pause in sales of Boeings’ 737 MAX.

The deficit with China decreased by $3.1 billion to $30.1 billion in February. Exports rose $1.6 billion to $9.2 billion and imports decreased $1.5 billion to $39.3 billion. This comes as both sides are set for additional rounds of trade talks later this month and in May as efforts ramp up to reach an agreement.

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin will be in Beijing the week of April 29, while Chinese Vice-Premier Liu He will return to Washington the following week for what many hope will be the final chapter in this long-running saga.

U.S. Economy Continues Moderate Growth - Manufacturing Sector Activity Remains Sluggish, Strong Retail Sales, Record Fall In Claims For Unemployment Benefits

The Federal Reserve’s qualitative assessment of U.S. economic conditions — commonly known as the Beige Book — was released this week, and economic activity is said to have expanded at a “slight-to-moderate pace” in March and early April. The outlook among those interviewed for the report is same to be for more of the same in the months ahead.

In the manufacturing sector, “trade-related uncertainty” was noted — a concern borne out by industrial production data released this week. Output by U.S. factories dipped by 0.1% last month, and is down 0.3% y/y in Q1. Manufacturing production was unchanged in March after declining in both January and February, while mining output fell 0.8%.

The Beige Book also noted that reports on consumer spending were mixed but suggested sluggish sales for both general retailers and auto dealers. However, data released this week showed a strong rebound in U.S. retail sales in March, up 1.6% after a 0.2% decline in February. Retail sales are up 1.2% excluding automobile sales, and +0.9% excluding auto and gasoline sales.

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Source: FTN Financial, U.S. Census Bureau

The Beige Book also noted that employment continued to increase nationwide, with employment increases were most highly concentrated in high-skilled jobs.

The U.S. Labor Department reported this week that initial claims for state unemployment benefits fell last week by 5,000 to 192,000 — the lowest level for initial claims since September 6, 1969 when it was 182,000. The 4-week moving average, which is less volatile than the weekly number, was 201,250, the lowest level for this average since November 1, 1969 when it was 200,500.

Meanwhile the housing market continues to stumble along, with applications for permits to build private homes down 1.7% in March compared to February, and -7.8% vs. the same month a year ago. Breaking ground on building new homes also took a dive, as privately‐owned housing starts in March were at an annual rate of 1,139,000 — 0.3% below February and a whopping 14.2% below March 2018.

As for finished projects, housing completions in March were 1.9% below February but 6.8% above March 2018.

In The News….

Germany, Europe’s largest economy, lowers expectations for economic growth — predicting weakest expansion in six years.

South Korea’s central bank leaves interest rates unchanged, says outlook for global economy and financial markets will hinge on factors such as the spread of trade protectionism, the monetary policies of advanced economies, and the uncertainties surrounding Brexit.

The United Kingdom’s unemployment rate was 3.9% in February, the lowest since early 1975.

Chart du Jour — The Industries Driving U.S. Economic Growth In 2018

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Written by

Founder — SW4 Insights. Public policy junkie and Central Bank Watcher. Recovering journalist and former Senior Director at Hamilton Place Strategies

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