Washington Insider -- Monday

The Recent US Jobs Report

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USDA’s Perdue Clearly Focused on E15 Relative to Biofuel Policy

The long-awaited biofuel package from the Trump administration was released Friday, but still had more questions it seems than answers. Even USDA Secretary Sonny Perdue did not have a lot of details to offer in remarks he made after the announcement.

Perdue told Agri-Talk that certainty was the biggest thing this announcement will bring. The administration is seeking to “follow the letter of the law,” Perdue remarked, referring to the RFS requirement that 15 billion gallons of conventional ethanol (primarily corn-based ethanol) be used in the nation’s motor fuel.

But the focus for USDA will especially be on E15, Perdue noted, explaining they are “working on ideas” and “listening to the industry on ideas of what it will take to grow E15 demand. What is the best way we can quickly make E15 the fuel of choice.”

Perdue said there will still be small refinery exemptions (SREs) issued, although “maybe not at 100 percent, but maybe 50 percent.”

The use of a three-year average of SREs is one way that those “will be accounted for,” Perdue said. While reallocating those SREs was looked at, he noted it was “a hill too high to climb.” But EPA will be using that three-year average to “maintain the minimum 15 billion gallons” for conventional ethanol, he observed.

One way to bolster E15 is “those pumps capable and certified for E10 can be used for E15,” Perdue said. Noting that E15 fuel is typically cheaper, he predicted: “If we give customers the choice, I am pretty confident of the choice they will make.”

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WTO DSB meeting set for October 14

The WTO has confirmed that a special meeting of the Dispute Settlement Body (DSB) will be held October 14 to consider the U.S. request to take retaliatory action against the European Union (EU) over subsidies the bloc has provided to Airbus – subsidies the WTO ruled were counter to EU trade commitments.

The WTO authorized the U.S. to take up to $7.5 billion in retaliatory actions against the WTO over the situation, the largest in WTO history.

The U.S. announced Tuesday it would put tariffs in place on a host of EU goods starting October 18, prompting the special meeting request of the DSB.

The action will be approved under what is called the "negative consensus" rule – the U.S. request can only be blocked if all members in attendance reject the request.


Washington Insider: The Recent US Jobs Report

Looking back on Friday’s jobs report, there is considerable disagreement over just what the trends mean, but Bloomberg say a clear signal is emerging: The world’s biggest economy is slowing down.”

The amount of the slowdown is not clear, however. “Friday’s report contained ammo for the optimists, as well as the pessimists – and plenty for the Federal Reserve to ponder ahead of its next interest-rate decision,” Bloomberg opined.

Clearly, the headline number for new jobs fell short of expectations, Bloomberg says – although the president looked past that, focusing on the unexpected drop in unemployment to a half-century low of 3.5%. Traders may have focused on that number too, paring expectations for a third straight rate cut.

Fed chief Jerome Powell didn’t even mention the jobs report when he told a Washington audience Friday that the economy is in a “good place” – but stopped short of any guidance about what to expect from the Oct. 29-30 rates meeting.

Bloomberg concludes that a cut in interest rates is still the likeliest outcome following a week of data that showed U.S. factories already in recession and service industries in the weakest state for three years.

“The economy is slowing,” Pacific Investment Management Co.’s chief U.S. economist, Tiffany Wilding, said. The jobs report wasn’t as bad as it could have been, she hedged, but the Fed is likely to cut again in October “because of broader indications of slowing growth.” Bloomberg also sorted out some of the “up-and down-arrows” from the report that U.S. monetary policy makers are looking at now.

Bloomberg thinks the “disappointing” wage gains are “better than they look, although growth in average hourly earnings unexpectedly cooled to 2.9% from 3.2%. Production and non-supervisory employees, the bulk of the workers, did better. Their pay rose 3.5%, down only slightly from the previous month’s decade-high of 3.6%.

In addition, Bloomberg sees the decline in unemployment as an “unvarnished up-arrow.” The jobless rate was the lowest since December 1969 and below all estimates in Bloomberg’s survey. The participation rate, which measures the proportion of working-age people who are employed, held at 63.2%.

Even the demographic data look pretty solid, Bloomberg says. Black unemployment held at 5.5%, a record low going back to the early 1970s, while the jobless rate among Hispanics fell to a new all-time low of 3.9%.

The White House says the numbers as a sign of progress and Fed policy makers likely agree, since “they’ve spoken frequently this year about making sure economic gains are reaching more Americans.” Also, the underemployment rate slipped to 6.9%, the lowest since 2000, from 7.2%. Since this rate includes part-time workers who’d prefer a full-time position, and those who aren’t actively looking for work, it is watched closely by analysts.

However, job growth is seen as “wobbling” as this year’s average rate of non-farm payroll gains fell to 161,000, down by a quarter from last year, while the figure for the private sector is down by a third to 143,000.

“It’s quite mixed in that job creation has slowed but it’s still running above break-even rates,” said Michelle Meyer, head of U.S. economics at Bank of America Corp.

Also, job growth in manufacturing and construction is “dimming fast” with the recent reading one of the weakest in the past couple of years. Construction is in the doldrums too, with employment growth well below last year’s pace.

In terms of ag trade, among the recent market metrics being reported, is that Brazil is chipping away market share from America’s cotton producers and the world’s top exporters as the U.S.-China trade fight continues.

Favored by a slumping currency against the American dollar, Brazil’s cotton growers have harvested their biggest crop yet and are preparing to ship the most volume ever to China, the top global importer. In the previous four years, Brazil produced 6% of China’s imports on average. This year, it’s expected to supply 23% of the imports, second only to Australia’s 26%, USDA forecasts.

“The persistent U.S.-China trade battle continues to force unprecedented dislocations in global soybean and cotton trade flows, while the U.S. dollar strength dampens U.S. export competitiveness relative to Brazil and Argentina,” Tracey Allen, an agricultural commodity strategist for JPMorgan Chase Co., reported.

Meanwhile, Brazil’s push into China comes at a time when American growers are also set to harvest their biggest crop in 14 years, with prices down 22% since the end of 2017.

White House economic adviser Larry Kudlow noted that the U.S. team’s trade team will approach next week’s talks with China with everything “on the table.” The schedule, going forward, involves meetings with deputies on Monday and Tuesday and with senior officials later in the week, the White House said.

So, we will see. There is a great deal of concern about the economy, as well as with both east and west trade tensions – fights producers should watch closely as they intensify, especially given the growing political tensions, Washington Insider believes.


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(GH/CZ)