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The Hours

The U.S. labor market is still going strong. But there are signs weakness in the factory sector is bleeding into the rest of the economy. Manufacturers toward the end of 2019 started cutting hours for rank-and-file workers at the fastest pace since March 2010. The ripple effect: All private-sector employers are adding hours at the slowest pace since July 2010. Together with weaker wage growth, that suggests consumer spending—the mainstay of economic growth right now—could slow. “The decline in aggregate hours worked is a function of the lagged impact of the trade war, the phase-one deal notwithstanding, and forward looking investors should anticipate a noticeable slowing in consumer spending in the first quarter of the year in addition to the traditional holiday hangover in overall consumption,” said RSM US economist Joseph Brusuelas. Keep an eye on December retail sales data, out Thursday, for any hints of a consumer lull.


The U.S. consumer-price index for December is expected to rise 0.3% from a month earlier and 2.3% from a year earlier. Excluding food and energy, CPI is expected to climb 0.2% and 2.3%.

The New York Fed’s John Williams speaks at the London School of Economics at 9 a.m. ET, and the Kansas City Fed’s Esther George speaks on the economy and monetary policy at 1 p.m. ET.

Bank of Japan Gov. Haruhiko Kuroda speaks at 7:30 p.m. ET.


Phase One

The world’s two largest economies will sign a compromise Wednesday that calms their trade war. The WSJ’s Bob Davis and Lingling Wei have the back story on a U.S-China trade deal neither side really wanted:

How did we get here? Trade talks came close to collapse around Thanksgiving. The backchannel that kept them on track: President Trump’s son-in-law and adviser Jared Kushner.

What we get. Increased purchases of U.S. goods and services, greater access for American firms to China’s banking, insurance and other financial sectors, an end to tariff threats—and a chance to reset relations between the world’s largest economies.

What we don’t. Fundamental reforms in Chinese economic policy the U.S. sought to help American businesses. Levies remain on about $370 billion of China’s exports.

What’s next. The U.S. is counting on remaining tariffs to compel Beijing to continue negotiating and agree to economic-policy changes. Chinese officials feel they have little to gain from a phase-two deal forcing them to ease state control of the economy. The Chinese government continues to plan for a future where the two economies would be less intertwined.

Chinese customs data showed the country had a trade surplus with the U.S. of $295.8 billion last year, compared with a record $323.3 billion in 2018. The figures represent China’s first full year of trade data since the trade war began. China’s 12.5% decline in exports to the U.S. last year would have narrowed the U.S. deficit more, but Chinese imports from the U.S. dropped even faster after Beijing imposed tariffs and directed state-owned companies to buy less from America. China’s imports from the U.S. fell nearly 21%.

The U.S. Treasury Department dropped its designation of China as a currency manipulator. Treasury’s semi-annual foreign-exchange report said the trade agreement’s chapter on Chinese currency practices addresses many of the concerns raised when the U.S. applied the manipulator designation in August, Joshua Zumbrun and Kate Davidson report.

Next front in U.S. trade fight? The White House is in the final stages of deciding if it will slap 100% tariffs on $2.4 billion’s worth of French wine and luxury goods. The tariff threats are the White House’s answer to a French tax of 3% on the digital service revenues of giants like Apple, Facebook and Google. The European Union has said it stands with France and “will respond” if the U.S. follows through. Europe’s trade commissioner Phil Hogan and U.S. Trade Rep. Robert Lighthizer will discuss the topic this week in Washington, Rochelle Toplensky reports.

Pump It Up

The U.S. budget gap widened in 2019. The federal deficit totaled $1.02 trillion over the 12 months that ended in December, the first calendar year the deficit has exceeded $1 trillion since 2012. Federal spending is outpacing revenues: Outlays rose 7.5% while receipts grew 5% in calendar 2019. Over the past 12 months, deficits as a share of the U.S. economy totaled 4.7%, compared with 4.2% the previous 12 months, Kate Davidson reports. Government spending has been a consistent driver of economic growth under President Trump.

Does This Mean Prices Will Fall? Asking for a Friend.

Americans bought less wine last year, the first such drop in a quarter of a century, as millennials opt for alternatives like hard seltzers, cocktails and nonalcoholic beer. The volume of wine purchased in the U.S. declined 0.9% in 2019, the first time it has fallen since 1994, according to industry tracker IWSR. The trend was ascribed to a generational shift as the number of millennials surpasses baby boomers, who drove strong demand for wine in America, Saabira Chaudhuri reports.

Corrections & Amplifications

A chart in Monday’s newsletter mislabeled U.S. exports to and the U.S. trade deficit with China. A corrected version appears below. Thanks to astute reader Mark Murphy for catching the error.


Investors are thinking about climate change and the economy. “The impact of climate change is broad based covering GDP, the capital stock, health, mortality, water stress, famine, displacement, migration, political stress, conflict, biodiversity and species survival. Uncertainty is endemic here as well, trying to evaluate the impact of a climate that the earth hasn’t seen for many millions of years. Empirical estimates based on the variability of the climate in recent decades likely massively underestimate the effects,” J.P. Morgan’s David Mackie and Jessica Murray write in a research note out Tuesday.

A cyberattack on the U.S. banking system could have a devastating effect on U.S. financial stability. “We estimate that the impairment of any of the five most active U.S. banks will result in significant spillovers to other banks, with 38% of the network affected on average. … When banks respond to uncertainty by liquidity hoarding, the potential impact in forgone payment activity is dramatic, reaching more than 2.5 times daily GDP,” New York Fed analysts Thomas Eisenbach, Anna Kovner, and Michael Junho Lee write in a staff report.


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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