Economy – Trade Talks = Market Sentiment

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Special Guest Blogger: Tim Kearney

The ups and downs of the Trump administration’s policies were in clear view over the past week — the up clearly being the unemployment and productivity data, and the down being the market’s worries about trade talks with China.

The recent run of domestic data show that we are still in an economic run-up: the lowest unemployment rate in 50 years, rising average hourly earnings, falling underemployment and contained wage costs. Productivity continues to ratchet higher (see Friday’s blog). Federal Reserve data for 1Q19 show an easing of lending conditions for small through large firms, per our models consistent with early stages of the cycle. This cycle is a bit like Benjamin Button, seemingly getting younger as time passes.

But then there’s the China–U.S. trade talks, where both sides seem to be digging in. We can’t know what’s happening in the talks, but we can watch to see if China agrees to further talks in Washington. Taking tariffs up to 25% requires a public comment period before any increase can be implemented. Note that the process the administration is using so far — Section 301 of the Trade Act of 1974 — entails a drawn-out time frame, which might argue for finding a quicker outcome.

Please follow global trade on pages 46–47 of the Global Perspectives book.

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