Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.Mixed Signals Continue on US-China Trade Front
Developments on the U.S.-China trade front continue to see mixed reports emerge. President Donald Trump on Monday said “Phase One” trade talks with China were ahead of schedule. “We are looking probably to be ahead of schedule to sign a very big portion of the China deal, and we will call it phase one but it is a very big portion,” Trump said. “That would take care of the farmers. It would take care of some of the other things. It will also take care of a lot of the banking needs.”
The agreement is expected to be signed when Trump and Chinese leader attend the APEC summit November 16-17 in Chile.
“So we are about, I would say, a little bit ahead of schedule, maybe a lot ahead of schedule,” the president said. “Probably we will sign it.”
However, Tuesday saw Reuters quote a Trump administration official as saying that the pact may not be ready to sign by the November APEC meeting. Financial markets took the development as a negative even as the report also quoted the official as saying that if the agreement was not ready for signing, it did not mean that the talks have fallen apart.
Spanish Olive Producers Call on EU to Investigate US Farm Subsidies
Spanish olive producers are calling on the European Union (EU) to hit the U.S. with stiff countermeasures over the tariffs imposed by the U.S. on a host of products in the Airbus dispute.
Olive producers face additional duties on black olives as a result of a trade action by the U.S. International Trade Commission to apply anti-subsidy tariffs on the imports.
The Airbus-related action also imposed tariffs on green olives – essentially putting tariffs on all table olive shipments from Spain.
The Spanish table olive producer group Interaceitunas is calling on the European Commission to investigate whether the U.S. unfairly subsidizes its farmers. The group is calling for the matter to be pursued at the WTO.
Washington Insider: Speculation About What Follows Expectations for Rate Cuts
Well, it is hard to keep up with the speculations about economic and trade policy these days. For example, Bloomberg is reporting this week that not only is the Fed projected to lower borrowing costs today for the third straight time, “a slew of economic reports this week will play a key role in whether the central bank needs to keep cutting or can take a breather.”
Figures due for release today “are projected to show gross domestic product in the July-September period expanded at 1.6% annualized pace, the second-slowest quarter under President Trump and about half the pace at the start of 2019 – as consumer spending pulled back from gangbusters growth.
Also, a couple of days later, the October jobs report may indicate that the largest strike in more than a decade pushed nonfarm payroll gains below 100,000—tepid gains even if the impacts of the General Motors Co. walkout are excluded.
The key question is whether the economy is stumbling toward a recession or merely cooling off, Bloomberg thinks. Stocks at a record high, along with a yield curve that’s turned positive again, have mitigated concern about a downturn.
Still, deteriorating global growth, administration tariffs on Chinese goods and a weakened manufacturing sector have put the record-long expansion – and the potential political impacts that implies “on the backs of consumers who are increasingly in a tougher position,” Bloomberg says.
“It has the potential to be a pretty ugly week,” said Sarah House, senior economist at Wells Fargo & Co. “We are far from out of the woods in terms of this slowdown and some of the headwinds that the economy is facing.”
While GDP and payrolls will take much of the spotlight, the widely watched Institute for Supply Management manufacturing index due Friday is expected to contract for another month in October, deepening concerns about fragile factories. Meanwhile, the employment cost index, a broad gauge monitored by the Fed, on Thursday could suggest companies remain hesitant to offer better wage gains and benefits.
“Until there’s some clarity on trade then it’s hard to see any kind of a meaningful rebound in business investment,” said Richard Moody, chief economist at Regions Financial Corp. Business spending on equipment and structures may hit bottom this quarter or continue to decline “and the two have very different implications for the course of the economy,” he said.
Bloomberg reports that its own economists say that, “economic activity in the second half of the year is poised to decelerate markedly as several drivers of growth fade and consumers are left dominating the outlook to an even greater degree than usual,” according to Carl Riccadonna, Yelena Shulyatyeva, Andrew Husby and Eliza Winger.
While there have been positive signs on trade, negotiations are far from over, the President said Monday. He noted that the U.S. is ahead of schedule with finalizing sections of the first phase of a trade deal with China that could be signed soon.
At the same time, Bloomberg claimed to see “one bright spot”: Residential investment, which has shrunk for six consecutive quarters, is poised add to accelerate its recent growth in the latest period as low mortgage rates helped boost sales. Still, the group thinks that this gain “was likely too small to make a significant impact on GDP for the period, so the onus remains on Americans to keep buying goods and services.”
As a result, Friday’s employment report, the first on the state of the labor market in the fourth quarter, is seen as increasingly important. The overall trend in payroll gains has slowed this year down to 161,000 new jobs a month versus 223,000 in 2018. While that’s still more than enough to keep up with working-age population growth, a continued pullback could dent consumer spending.
“If you see more slowing in the labor market than is already expected I think that is going to call into question whether the consumption story is going to hold up,” said Brett Ryan, senior U.S. economist at Deutsche Bank AG. “And that’s the fear.”
The now-ended walkout of 46,000 General Motors Co. workers together with its follow up implications “could complicate the headline number.” However, the strike will be concentrated in manufacturing payrolls, making it easy to separate from the overall trend. In past jobs reports, the Bureau of Labor Statistics has flagged when a strike causes large payroll declines in specific industries.
Another wrinkle could come from hiring for the 2020 census. Fewer than 30,000 of roughly 40,000 temporary hires were accounted for in official data for August and September.
Bank of America Corp. economists expect nonfarm payrolls to rise just 25,000--the low end of forecasts ranging as high as 140,000 – with wages stalling and the Fed signaling it’s open to further interest-rate cuts.
If all goes as Bank of America expects, that indicates “the economy is shaky and the Fed still perceives there to be risks,” said Michelle Meyer, the firm’s head of U.S. economics.
So, we will see. The current uncertainties are certainly significant, trends producers should watch closely as the season progresses, Washington Insider believes.
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