Gold&nbsp;surged&nbsp;2 per cent on&nbsp;Friday as investors interpreted <a href="https://www.wionews.com/business-economy/oil-prices-eke-out-small-gains-ahead-of-federal-reserve-chair-jerome-powell-speech-244921">US Federal Reserve Chair Jerome&nbsp;Powell</a>'s&nbsp;speech&nbsp;as leaning toward a dovish monetary policy stance and President Donald&nbsp;Trump's latest comments exacerbated trade tensions with China.

Spot&nbsp;gold&nbsp;rose 1.9per cent at $1,526.60 an ounce by 14:08 pm EDT (1801 GMT), shaking off slight headwinds ahead of the Fed Chair's&nbsp;speech.

Prices earlier rose to $1,528.79, the highest since August&nbsp;13, when spot&nbsp;gold&nbsp;had scaled a six-year peak of $1,534.31.

US&nbsp;gold&nbsp;futures settled up 1.9per cent to $1,537.60.

"The fact that he (Powell) said that they (the Fed) will act appropriately to sustain expansion is pretty bullish for&nbsp;gold. The two primary tools they have are quantitative easing (QE) or lower rates - both those tools will cause&nbsp;gold&nbsp;to go higher," said Bob Haberkorn, senior market strategist at RJO Futures.

"The move this morning is just more people buying&nbsp;gold&nbsp;simply with the expectations that interest rates will be lower by year-end."

Powell&nbsp;said the US economy is in a "favourable place," but gave few clues about interest rate cuts at its next meeting.

However, he listed a series of economic and geopolitical risks the Fed is monitoring, noting these were linked to the trade spat.

"We shouldn't be surprised if we see the <a href="https://www.wionews.com/business-economy/fedex-offers-cautious-2020-outlook-as-ceo-slams-united-states-china-on-trade-230487">Fed deliver a full percentage point</a> in rate cuts over the next 12 months and a new QE program as we may only need a couple of the following macro events to blow up: trade uncertainties, weakness in China and Germany, Brexit, Hong Kong, and the dissolution of the Italian government," Edward Moya, a senior market analyst at OANDA, said in a note.

Powell's&nbsp;speech&nbsp;prompted a backlash from&nbsp;Trump&nbsp;on Twitter, asking whether the Fed chair was a greater "enemy" than China's leader Xi Jinping.

Trump&nbsp;also ratcheted up the rhetoric on China, ordering US companies to look at ways to close operations in the country, which sent equities tumbling and drove further inflows into safe-haven&nbsp;gold.

This came&nbsp;after&nbsp;China unveiled retaliatory tariffs against about $75 billion worth of US&nbsp;goods.

"This means there is no resolution, the escalation continues. Investors are selling the risk and buying&nbsp;gold," said SP Angel analyst Sergey Raevskiy.

Gold&nbsp;has risen nearly 8 per cent so far this month and about 19per cent this year and was set for a fourth straight week of gains.

Elsewhere, silver gained 2.3per cent to $17.39 an ounce, while platinum was up 0.1per cent at $858.11.

Palladium fell 1.7per cent to $1,461.83 an ounce, but the autocatalyst metal remained on track for a third straight weekly gain of about 0.9

Gold surged 2 per cent on Friday as investors interpreted US Federal Reserve Chair Jerome Powell's speech as leaning toward a dovish monetary policy stance and President Donald Trump's latest comments exacerbated trade tensions with China.

Gold surged 2 per cent on Friday as investors interpreted US Federal Reserve Chair Jerome Powell's speech as leaning toward a dovish monetary policy stance and President Donald Trump's latest comments exacerbated trade tensions with China. Spot gold rose 1.9per cent at $1,526.60 an ounce by 14:08 pm EDT (1801 GMT), shaking off slight headwinds ahead of the Fed Chair's speech. Prices earlier rose to $1,528.79, the highest since August 13, when spot gold had scaled a six-year peak of $1,534.31. US gold futures settled up 1.9per cent to $1,537.60. "The fact that he (Powell) said that they (the Fed) will act appropriately to sustain expansion is pretty bullish for gold. The two primary tools they have are quantitative easing (QE) or lower rates - both those tools will cause gold to go higher," said Bob Haberkorn, senior market strategist at RJO Futures. "The move this morning is just more people buying gold simply with the expectations that interest rates will be lower by year-end." Powell said the US economy is in a "favourable place," but gave few clues about interest rate cuts at its next meeting. However, he listed a series of economic and geopolitical risks the Fed is monitoring, noting these were linked to the trade spat. "We shouldn't be surprised if we see the Fed deliver a full percentage point in rate cuts over the next 12 months and a new QE program as we may only need a couple of the following macro events to blow up: trade uncertainties, weakness in China and Germany, Brexit, Hong Kong, and the dissolution of the Italian government," Edward Moya, a senior market analyst at OANDA, said in a note. Powell's speech prompted a backlash from Trump on Twitter, asking whether the Fed chair was a greater "enemy" than China's leader Xi Jinping. Trump also ratcheted up the rhetoric on China, ordering US companies to look at ways to close operations in the country, which sent equities tumbling and drove further inflows into safe-haven gold. This came after China unveiled retaliatory tariffs against about $75 billion worth of US goods. "This means there is no resolution, the escalation continues. Investors are selling the risk and buying gold," said SP Angel analyst Sergey Raevskiy. Gold has risen nearly 8 per cent so far this month and about 19per cent this year and was set for a fourth straight week of gains. Elsewhere, silver gained 2.3per cent to $17.39 an ounce, while platinum was up 0.1per cent at $858.11. Palladium fell 1.7per cent to $1,461.83 an ounce, but the autocatalyst metal remained on track for a third straight weekly gain of about 0.9

Gold soars 2% after US Federal Reserve Chair Jerome Powell speech, Trump tweets

<a href="https://www.wionews.com/world/oil-steadies-as-demand-concern-counters-middle-east-tensions-234074">Oil prices steadied on Friday</a>, on track for a weekly gain, with attention focused on a speech by US Federal Reserve chief Jerome Powell for news on whether it will cut interest rates for a second time this year to boost the world's largest economy.

Brent crude futures, the international benchmark for oil prices, fell 8 cents to $59.84 a barrel by 0952 GMT but was up about 2.1 per cent on the week.

US West Texas Intermediate (WTI) crude futures slipped by 3 cents to $55.32, up 0.8per cent this week.

"For now, it all comes down to Powell’s projected bias on Friday. Does he insist on the robustness of the US economy or does he highlight the growing downside risks? Investors’ interpretation of Powell’s policy bias is set to sway markets," said FXTM market analyst Han Tan.

Traders will comb through Powell's speech later on Friday at a meeting of global central bankers at Jackson Hole, Wyoming, looking for clues on US rates as economic headwinds strengthen and the US-China trade conflict shows no sign of abating.

"Some have blamed the hesitant tone [for oil prices] on an end-of-summer lull. Yet, in truth, the sense of unease stems from ongoing worries about the global economy," said Stephen Brennock of oil broker PVM.

Exacerbating concern over the possibility of a recession, US manufacturing industries registered their first month of contraction in almost a decade.

However, oil production cuts from OPEC members and Russia, as well as reduced exports from Iran and Venezuela because of US sanctions, have continued to support crude prices.

Harry Tchilinguirian, of BNP Paribas, said the market had some bearish data, with a rise in <a href="https://www.wionews.com/world/under-pressure-from-donald-trump-organization-of-the-petroleum-exporting-countries-embraces-vladimir-putin-232769">Saudi Arabian oil exports while Russia’s crude</a> output moved above its quota under an OPEC+ agreement and Russian state oil major Rosneft helped to ship Venezuelan oil to China and India.

OPEC, Russia and other producers have, since Jan. 1, implemented a deal to cut output by 1.2 million barrels per day. The alliance, known as OPEC+, renewed the pact in July, extending the curbs to March 2020 to avoid a build-up of inventories that could hit prices.

French President Emmanuel Macron will meet Iranian Foreign Minister Mohammad Javad Zarif on Friday as world powers seek to salvage a 2015 international nuclear deal signed with Tehran.

Iran has said it will scale back compliance with the pact unless the Europeans find a solution enabling Tehran to sell its oil despite U.S. sanctions.

Oil prices steadied on Friday, on track for a weekly gain, with attention focused on a speech by US Federal Reserve chief Jerome Powell for news on whether it will cut interest rates for a second time this year to boost the world's largest economy.

Oil prices steadied on Friday, on track for a weekly gain, with attention focused on a speech by US Federal Reserve chief Jerome Powell for news on whether it will cut interest rates for a second time this year to boost the world's largest economy. Brent crude futures, the international benchmark for oil prices, fell 8 cents to $59.84 a barrel by 0952 GMT but was up about 2.1 per cent on the week. US West Texas Intermediate (WTI) crude futures slipped by 3 cents to $55.32, up 0.8per cent this week. "For now, it all comes down to Powell’s projected bias on Friday. Does he insist on the robustness of the US economy or does he highlight the growing downside risks? Investors’ interpretation of Powell’s policy bias is set to sway markets," said FXTM market analyst Han Tan. Traders will comb through Powell's speech later on Friday at a meeting of global central bankers at Jackson Hole, Wyoming, looking for clues on US rates as economic headwinds strengthen and the US-China trade conflict shows no sign of abating. "Some have blamed the hesitant tone [for oil prices] on an end-of-summer lull. Yet, in truth, the sense of unease stems from ongoing worries about the global economy," said Stephen Brennock of oil broker PVM. Exacerbating concern over the possibility of a recession, US manufacturing industries registered their first month of contraction in almost a decade. However, oil production cuts from OPEC members and Russia, as well as reduced exports from Iran and Venezuela because of US sanctions, have continued to support crude prices. Harry Tchilinguirian, of BNP Paribas, said the market had some bearish data, with a rise in Saudi Arabian oil exports while Russia’s crude output moved above its quota under an OPEC+ agreement and Russian state oil major Rosneft helped to ship Venezuelan oil to China and India. OPEC, Russia and other producers have, since Jan. 1, implemented a deal to cut output by 1.2 million barrels per day. The alliance, known as OPEC+, renewed the pact in July, extending the curbs to March 2020 to avoid a build-up of inventories that could hit prices. French President Emmanuel Macron will meet Iranian Foreign Minister Mohammad Javad Zarif on Friday as world powers seek to salvage a 2015 international nuclear deal signed with Tehran. Iran has said it will scale back compliance with the pact unless the Europeans find a solution enabling Tehran to sell its oil despite U.S. sanctions.

Oil price steadies as markets await Fed steer

In an interview to FOX new network, US President Donald Trump has indicated that he is ready to slap tariffs on all remaining Chinese imports. Watch full video to know more.

US President Donald Trump hints at more tariffs on Chinese goods

Asian equities suffered fresh losses, the dollar rose and gold retreated Wednesday after top Federal Reserve officials dented hopes for a big interest rate cut next month, while traders are also fretting over this week's meeting between Donald Trump and Xi Jinping.

Adding to the downward pressure were concerns about worsening tensions between the US and Iran, though a drop in US stockpiles boosted oil prices.

Global markets had been on a healthy rally for more than a week after Trump hailed phone talks with his Chinese counterpart and said they would meet to discuss their trade war on the sidelines of the G20 summit in Osaka.

That coincided with a dovish lean from the US central bank that raised expectations that it would soon announce its first rate reduction for more than a decade.

However, optimism took a hit Tuesday after Fed boss Jerome Powell warned about the outlook for the US economy but said policymakers would not "overreact" to recent data.&nbsp;

Also Tuesday, St Louis Fed president James Bullard, considered a key dove on the board, told Bloomberg a cut of 50 basis points -- which many investors had been hoping for -- would be excessive.

The remarks hit equities with Wall Street's three main indexes sharply lower and the dollar, which has come under heavy pressure of late, bounced back against its major peers and other higher-yielding but riskier currencies.

"Bullard... dashed the hopes of many investors who were expecting the Fed to kick-start this easing cycle with a bang," said Edward Moya, senior market analyst at OANDA. "With the most dovish member taking a 50-basis point cut off the table, the dollar surged as equities tumbled."

Oil prices rally

The weaker dollar put a cap on gold's rally, with the yellow metal's safe-haven status in times of turmoil unable to stop it sinking from six-year highs.

Investors are keeping their focus on the planned meeting between Trump and Xi in Japan, though the US side dampened expectations for a deal between the two, saying the talks would set out a path for an agreement.

However, officials did say they were willing to hold off hiking tariffs on more Chinese goods, Bloomberg News reported.&nbsp;

Still, observers expect the issue to continue for some time.

"The US-China trade war stalemate is likely to continue as political considerations reign supreme," said brokerage T Rowe Price.

"With President Trump facing re-election in 2020, he may want to put off any agreement until next year, while China may want to deny President Trump a trade success to damage his re-election prospects, allowing Beijing to negotiate with his successor."

Crude surged after data showed a 7.55-million-barrel decline in US inventories, with Iran tensions also buoying the market.

"Oil prices went ballistic" after the report from industry group the American Petroleum Institute, said Stephen Innes of Vanguard Markets. "This is a strong signal for the energy market."

Asian equities suffered fresh losses, the dollar rose and gold retreated Wednesday after top Federal Reserve officials dented hopes for a big interest rate cut next month, while traders are also fretting over this week's meeting between Donald Trump and Xi Jinping.

Asian equities suffered fresh losses, the dollar rose and gold retreated Wednesday after top Federal Reserve officials dented hopes for a big interest rate cut next month, while traders are also fretting over this week's meeting between Donald Trump and Xi Jinping. Adding to the downward pressure were concerns about worsening tensions between the US and Iran, though a drop in US stockpiles boosted oil prices. Global markets had been on a healthy rally for more than a week after Trump hailed phone talks with his Chinese counterpart and said they would meet to discuss their trade war on the sidelines of the G20 summit in Osaka. That coincided with a dovish lean from the US central bank that raised expectations that it would soon announce its first rate reduction for more than a decade. However, optimism took a hit Tuesday after Fed boss Jerome Powell warned about the outlook for the US economy but said policymakers would not "overreact" to recent data. Also Tuesday, St Louis Fed president James Bullard, considered a key dove on the board, told Bloomberg a cut of 50 basis points -- which many investors had been hoping for -- would be excessive. The remarks hit equities with Wall Street's three main indexes sharply lower and the dollar, which has come under heavy pressure of late, bounced back against its major peers and other higher-yielding but riskier currencies. "Bullard... dashed the hopes of many investors who were expecting the Fed to kick-start this easing cycle with a bang," said Edward Moya, senior market analyst at OANDA. "With the most dovish member taking a 50-basis point cut off the table, the dollar surged as equities tumbled." Oil prices rally The weaker dollar put a cap on gold's rally, with the yellow metal's safe-haven status in times of turmoil unable to stop it sinking from six-year highs. Investors are keeping their focus on the planned meeting between Trump and Xi in Japan, though the US side dampened expectations for a deal between the two, saying the talks would set out a path for an agreement. However, officials did say they were willing to hold off hiking tariffs on more Chinese goods, Bloomberg News reported. Still, observers expect the issue to continue for some time. "The US-China trade war stalemate is likely to continue as political considerations reign supreme," said brokerage T Rowe Price. "With President Trump facing re-election in 2020, he may want to put off any agreement until next year, while China may want to deny President Trump a trade success to damage his re-election prospects, allowing Beijing to negotiate with his successor." Crude surged after data showed a 7.55-million-barrel decline in US inventories, with Iran tensions also buoying the market. "Oil prices went ballistic" after the report from industry group the American Petroleum Institute, said Stephen Innes of Vanguard Markets. "This is a strong signal for the energy market."

Asian markets and gold drop, dollar boosted on Fed rate worries

US President Donald Trump on Monday lashed out at the Federal Reserve, accusing the central bank of standing in the way of major economic expansion by refusing to cut interest rates.

The president's Twitter outburst was only his latest episode of rock throwing at policymakers who are meant to be shielded from political pressure but who have contended with his barbs since last year.

However, economists say it is in fact in large part because of Trump's own trade policies that the central bank is now considering cutting rates for the first time in a decade as the risks of recession grow.

"Despite a Federal Reserve that doesn't know what it is doing... we are on course to have one of the best Months of June in US history," Trump tweeted.

<div class="ui-state-default" contenteditable="false">
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<blockquote class="twitter-tweet" data-lang="en">
Despite a Federal Reserve that doesn’t know what it is doing - raised rates far too fast (very low inflation, other parts of world slowing, lowering &amp; easing) &amp; did large scale tightening, $50 Billion/month, we are on course to have one of the best Months of June in US history...
— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/1143140105076563970?ref_src=twsrc%5Etfw">June 24, 2019</a></blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script></div>
<a class="close-mark close-div" href="#" id="jqclosemark">×</a></div>

"Think of what it could have been if the Fed had gotten it right. (...) Now they stick, like a stubborn child, when we need rate cuts &amp; easing, to make up for what other countries are doing against us. Blew it!"

<div class="ui-state-default" contenteditable="false">
<div class="twitter-block" draggable="false">
<blockquote class="twitter-tweet" data-lang="en">
Despite a Federal Reserve that doesn’t know what it is doing - raised rates far too fast (very low inflation, other parts of world slowing, lowering &amp; easing) &amp; did large scale tightening, $50 Billion/month, we are on course to have one of the best Months of June in US history...
— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/1143140105076563970?ref_src=twsrc%5Etfw">June 24, 2019</a></blockquote>
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According to Trump, if not for the Fed, the US economy would be expanding by an annual rate of four or five per cent while the Dow Jones Industrial Average, a marquee of Wall Street success, would be "thousands of points higher."

With 10 years of growth, the world's largest economy next month will mark its longest period of expansion on record.

At the same time, it has begun to give off mixed signals.

On one hand, surveys of consumer confidence and business activity are running hot, unemployment is still near 50-year lows, and consumer spending has been strong in recent months.

But other more worrisome signs are afoot, as the boost from 2017's tax cuts fades along with that of last year's fiscal stimulus.

Growth in the second quarter is forecast to be about half the pace of the first, manufacturing has continued to weaken and business investment has declined.

'Risk of a pronounced slowdown'

And Trump has threatened to jack up tariffs on another $300 billion in Chinese imports, which could send shockwaves through the global economy.

As a result, the Fed last week left benchmark US lending rates untouched for the fourth time this year and the bank is signalling it could cut soon rates exactly as Trump wants.

But, rather than aiming to unleash pent-up US economic might, a cut will be warranted if the economic outlook deteriorates, according to Fed Chairman Jerome Powell.

Persistent trade friction and slowing global growth, among other factors, had "strengthened" the case for looser monetary policy, he said.

Oxford Economics on Monday predicted the Fed will in fact cut rates three times by next year, noting that "with fiscal stimulus dissipating and global growth waning amid elevated trade tensions, the risk of a pronounced slowdown into 2020 is non-negligible."

The spectre of higher and higher tariffs has weighed on investment decisions, dented confidence and helped slow global manufacturing.

Douglas Holtz-Eakin, a Republican economist and former director of the Congressional Budget Office, told AFP the US economy has seen a sudden and unexplained bout of weakness in the first half or 2019.

"The biggest thing that's happened in there is a whole series of tariff moves by the president," said Holtz-Eakin. "That's the only real policy move we've had."

The United States has not seen back-to-back quarters of GDP growth greater than five per cent since 1999, a time when the Fed had interest rates around five per cent -- or twice what they are now.

And many economists say returning to such levels is simply not in the cards, given the country's ageing population and sluggish productivity growth.

Holtz-Eakin, who publicly argued in favour of congressional Republicans' 2017 tax cuts, doubted the Fed was blocking the breakout of growth that Trump described, describing five per cent growth as "implausible."

"When the prior administration had rates at zero per cent for a decade, why didn't the economy grow at seven per cent?" he said.

"This is convenient logic but I don't think it is grounded by anything in fact."

US President Donald Trump on Monday lashed out at the Federal Reserve, accusing the central bank of standing in the way of major economic expansion by refusing to cut interest rates.

US President Donald Trump on Monday lashed out at the Federal Reserve, accusing the central bank of standing in the way of major economic expansion by refusing to cut interest rates. The president's Twitter outburst was only his latest episode of rock throwing at policymakers who are meant to be shielded from political pressure but who have contended with his barbs since last year. However, economists say it is in fact in large part because of Trump's own trade policies that the central bank is now considering cutting rates for the first time in a decade as the risks of recession grow. "Despite a Federal Reserve that doesn't know what it is doing... we are on course to have one of the best Months of June in US history," Trump tweeted. Despite a Federal Reserve that doesn’t know what it is doing - raised rates far too fast (very low inflation, other parts of world slowing, lowering & easing) & did large scale tightening, $50 Billion/month, we are on course to have one of the best Months of June in US history... — Donald J. Trump (@realDonaldTrump) June 24, 2019 × "Think of what it could have been if the Fed had gotten it right. (...) Now they stick, like a stubborn child, when we need rate cuts & easing, to make up for what other countries are doing against us. Blew it!" Despite a Federal Reserve that doesn’t know what it is doing - raised rates far too fast (very low inflation, other parts of world slowing, lowering & easing) & did large scale tightening, $50 Billion/month, we are on course to have one of the best Months of June in US history... — Donald J. Trump (@realDonaldTrump) June 24, 2019 × According to Trump, if not for the Fed, the US economy would be expanding by an annual rate of four or five per cent while the Dow Jones Industrial Average, a marquee of Wall Street success, would be "thousands of points higher." With 10 years of growth, the world's largest economy next month will mark its longest period of expansion on record. At the same time, it has begun to give off mixed signals. On one hand, surveys of consumer confidence and business activity are running hot, unemployment is still near 50-year lows, and consumer spending has been strong in recent months. But other more worrisome signs are afoot, as the boost from 2017's tax cuts fades along with that of last year's fiscal stimulus. Growth in the second quarter is forecast to be about half the pace of the first, manufacturing has continued to weaken and business investment has declined. 'Risk of a pronounced slowdown' And Trump has threatened to jack up tariffs on another $300 billion in Chinese imports, which could send shockwaves through the global economy. As a result, the Fed last week left benchmark US lending rates untouched for the fourth time this year and the bank is signalling it could cut soon rates exactly as Trump wants. But, rather than aiming to unleash pent-up US economic might, a cut will be warranted if the economic outlook deteriorates, according to Fed Chairman Jerome Powell. Persistent trade friction and slowing global growth, among other factors, had "strengthened" the case for looser monetary policy, he said. Oxford Economics on Monday predicted the Fed will in fact cut rates three times by next year, noting that "with fiscal stimulus dissipating and global growth waning amid elevated trade tensions, the risk of a pronounced slowdown into 2020 is non-negligible." The spectre of higher and higher tariffs has weighed on investment decisions, dented confidence and helped slow global manufacturing. Douglas Holtz-Eakin, a Republican economist and former director of the Congressional Budget Office, told AFP the US economy has seen a sudden and unexplained bout of weakness in the first half or 2019. "The biggest thing that's happened in there is a whole series of tariff moves by the president," said Holtz-Eakin. "That's the only real policy move we've had." The United States has not seen back-to-back quarters of GDP growth greater than five per cent since 1999, a time when the Fed had interest rates around five per cent -- or twice what they are now. And many economists say returning to such levels is simply not in the cards, given the country's ageing population and sluggish productivity growth. Holtz-Eakin, who publicly argued in favour of congressional Republicans' 2017 tax cuts, doubted the Fed was blocking the breakout of growth that Trump described, describing five per cent growth as "implausible." "When the prior administration had rates at zero per cent for a decade, why didn't the economy grow at seven per cent?" he said. "This is convenient logic but I don't think it is grounded by anything in fact."

Trump bashes 'stubborn child' Federal Reserve as economy shows signs of weakness

By Amitrajeet A Batabyal&nbsp;

President Donald Trump’s trade war with China is based on two basic and complementary assumptions: The US economy is strong and, perhaps more importantly, stronger than the Chinese economy.

Last summer when the war began heating up, both assumptions were certainly true. The American economy was booming, while China’s was slowing. Hence, the US was in a better position to withstand any pain in a tariff war of attrition.

But the first of those assumptions, at least, is beginning to falter as signs grow of economic weakness in the US.

As an economist who conducts research in international trade, I believe that a weaker US economy would likely affect Trump’s ability to engage in a prolonged trade war with China – no matter how much he might want to.

Signs of Weakness

The US economy has been expanding for a decade now, and no economy can continue to grow indefinitely. The May jobs report was the latest indicator that the party may be coming to an end.

The report showed that the US economy added only 75,000 jobs that month, a significantly lower number than the 224,000 jobs added in April. Even though the unemployment rate stayed at the extremely low figure of 3.6 per cent, worryingly, there was virtually no wage growth. In addition, another key metric, the so-called ISM Manufacturing Index, fell to its lowest level in Trump’s presidency in May.

And while GDP growth has remained fairly robust, there have been other harbingers of underlying weakness in recent months, including a bond market signal that a recession may be on the horizon and a broad measure of the health of the US economy that recorded its slowest increase in more than two years.

Putting this all together, it suggests a key premise behind Trump’s trade war with China may not hold up for much longer.

Trade War’s Role

One of the reasons to blame for economic sluggishness is the trade war itself and specifically Trump’s use of tariffs to prosecute it.

Contrary to what he has said in the past, elementary trade theory shows that tariffs not only hurt the intended target but the tariff-imposing nation as well. This fundamental theoretical prediction is now being borne out in practice.

For instance, a recent and ongoing study by a group of economists shows that the higher prices resulting from Trump’s tariffs on China have been paid largely by US retailers, and some of them may soon be passed on to consumers. A separate study focused on washing machines found that tariffs resulted in an average 12 per cent increase in the price of the appliance, whether it was imported or made domestically.

Then there’s the impact of the retaliatory tariffs. Studies show that the US coal, crude oil and agricultural sectors have all been detrimentally affected by Chinese tariffs imposed in response. In addition, there is a reason to believe that the slowdown in American job growth is being felt most acutely in the sectors that are most susceptible to trade tensions such as manufacturing, construction, mining and logging.

In other words, if the deleterious impacts of Trump’s trade war with China continue to be felt in an economy that is weakening, it is certainly likely that there will be much greater opposition to these tariffs from industry groups and lawmakers.

These possibilities cast serious doubt on Trump’s ability to continue – let alone achieve the concessions he might need to win – a protracted trade war with China.

Fed to the Rescue?

Trump may end up having an unexpected ally in the Federal Reserve, however.

Evidence of weakness has already ended the US central bank’s policy of monetary tightening by raising interest rates. The latest data will no doubt put considerable pressure on the Fed to actually cut rates to avoid a more sustained slowdown.

If it does, then the Fed-driven stimulation will mitigate some of the pain felt by Americans as a result of Trump’s trade war with China and allow him to continue to prosecute his trade war.

High Stakes

That being said, it is still too early to say definitively that the US economy is cooling.

And, given Trump’s unpredictability, it’s impossible to forecast what may happen no matter what. At least for now, the president appears to have no intention of backing down.

But for me, a weakening economy adds to the reasons why this trade war is not only futile but harmful. For one thing, I believe tariffs alone cannot address the underlying structural problems that afflict US-China trade.

And let’s not forget that the trade war has global repercussions. The Organisation for Economic Cooperation and Development recently warned that an escalation of this trade war – as Trump has repeatedly threatened – will damage the rest of the world, trimming 0.7 per cent off global growth by 2021. That may not sound like much, but this trimming amounts to a whopping $600 billion in lost economic activity.

It’s a reminder that the stakes of this war are enormous.

(Arthur J. Gosnell Professor of Economics, Rochester Institute of Technology)

(This article was originally published on The Conversation. Read the<a href="https://theconversation.com/could-a-weakening-us-economy-imperil-trumps-trade-war-against-china-118576"> original article</a>)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)&nbsp; 
&nbsp;

By Amitrajeet A Batabyal President Donald Trump’s trade war with China is based on two basic and complementary assumptions: The US economy is strong and, perhaps more importantly, stronger than the Chinese economy.

By Amitrajeet A Batabyal President Donald Trump’s trade war with China is based on two basic and complementary assumptions: The US economy is strong and, perhaps more importantly, stronger than the Chinese economy. Last summer when the war began heating up, both assumptions were certainly true. The American economy was booming, while China’s was slowing. Hence, the US was in a better position to withstand any pain in a tariff war of attrition. But the first of those assumptions, at least, is beginning to falter as signs grow of economic weakness in the US. As an economist who conducts research in international trade, I believe that a weaker US economy would likely affect Trump’s ability to engage in a prolonged trade war with China – no matter how much he might want to. Signs of Weakness The US economy has been expanding for a decade now, and no economy can continue to grow indefinitely. The May jobs report was the latest indicator that the party may be coming to an end. The report showed that the US economy added only 75,000 jobs that month, a significantly lower number than the 224,000 jobs added in April. Even though the unemployment rate stayed at the extremely low figure of 3.6 per cent, worryingly, there was virtually no wage growth. In addition, another key metric, the so-called ISM Manufacturing Index, fell to its lowest level in Trump’s presidency in May. And while GDP growth has remained fairly robust, there have been other harbingers of underlying weakness in recent months, including a bond market signal that a recession may be on the horizon and a broad measure of the health of the US economy that recorded its slowest increase in more than two years. Putting this all together, it suggests a key premise behind Trump’s trade war with China may not hold up for much longer. Trade War’s Role One of the reasons to blame for economic sluggishness is the trade war itself and specifically Trump’s use of tariffs to prosecute it. Contrary to what he has said in the past, elementary trade theory shows that tariffs not only hurt the intended target but the tariff-imposing nation as well. This fundamental theoretical prediction is now being borne out in practice. For instance, a recent and ongoing study by a group of economists shows that the higher prices resulting from Trump’s tariffs on China have been paid largely by US retailers, and some of them may soon be passed on to consumers. A separate study focused on washing machines found that tariffs resulted in an average 12 per cent increase in the price of the appliance, whether it was imported or made domestically. Then there’s the impact of the retaliatory tariffs. Studies show that the US coal, crude oil and agricultural sectors have all been detrimentally affected by Chinese tariffs imposed in response. In addition, there is a reason to believe that the slowdown in American job growth is being felt most acutely in the sectors that are most susceptible to trade tensions such as manufacturing, construction, mining and logging. In other words, if the deleterious impacts of Trump’s trade war with China continue to be felt in an economy that is weakening, it is certainly likely that there will be much greater opposition to these tariffs from industry groups and lawmakers. These possibilities cast serious doubt on Trump’s ability to continue – let alone achieve the concessions he might need to win – a protracted trade war with China. Fed to the Rescue? Trump may end up having an unexpected ally in the Federal Reserve, however. Evidence of weakness has already ended the US central bank’s policy of monetary tightening by raising interest rates. The latest data will no doubt put considerable pressure on the Fed to actually cut rates to avoid a more sustained slowdown. If it does, then the Fed-driven stimulation will mitigate some of the pain felt by Americans as a result of Trump’s trade war with China and allow him to continue to prosecute his trade war. High Stakes That being said, it is still too early to say definitively that the US economy is cooling. And, given Trump’s unpredictability, it’s impossible to forecast what may happen no matter what. At least for now, the president appears to have no intention of backing down. But for me, a weakening economy adds to the reasons why this trade war is not only futile but harmful. For one thing, I believe tariffs alone cannot address the underlying structural problems that afflict US-China trade. And let’s not forget that the trade war has global repercussions. The Organisation for Economic Cooperation and Development recently warned that an escalation of this trade war – as Trump has repeatedly threatened – will damage the rest of the world, trimming 0.7 per cent off global growth by 2021. That may not sound like much, but this trimming amounts to a whopping $600 billion in lost economic activity. It’s a reminder that the stakes of this war are enormous. (Arthur J. Gosnell Professor of Economics, Rochester Institute of Technology) (This article was originally published on The Conversation. Read the original article) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL.)

Could a weakening US economy imperil Trump’s trade war against China?

Against the backdrop of worsening trade conflicts, US job creation slowed sharply in May, adding to evidence the economy is weakening and raising expectations the Federal Reserve could cut interest rates soon.

Hiring dried up in major industries and wage growth stagnated, and because job growth was worse than previously reported in March and April, hiring was essentially flat last month, the Labor Department reported Friday.

With the China trade conflict increasing and a new battle with Mexico set to begin Monday, with dire implications for a host of industries, the unexpectedly steep job slowdown in May heightened fears the world's largest economy is beginning to sputter.

US employers added only 75,000 net new positions last month, less than half the 180,000 economists had been expecting, with sudden drops in hiring in healthcare, education and construction.&nbsp;

The federal government payroll also shrank unexpectedly by 15,000 workers.&nbsp;

The unemployment rate held steady at 3.6 per cent, matching April's level, the lowest since 1969.

As he ploughs ahead with his aggressive and unorthodox trade agenda, President Donald Trump has been comforted that vigorous job gains and historically low unemployment provide a buffer against retaliation in tariff battles with major trading partners that have hit the US manufacturing sector in particular.

The US economy in July will break the record for its longest-ever expansion but economists expect it to slow a notch in 2019 and the odds of a recession have also increased.

The average job gains for the past three months was 151,000 compared to the 12-month average of 196,000, signalling a slowdown in hiring, also attributed to the difficulty of finding workers.

Kevin Hassett, the White House's departing chief economist, conceded Friday that the numbers were weaker than expected, but he pointed to special factors.

"There really were pretty serious weather effects. There's all this flooding in the Midwest... a lot of the ports had to stop taking traffic," he told CNBC.

Hassett estimated weather could have cut the monthly hiring figure by 40,000 positions but the result was still underwhelming.

"It's a little bit disappointing but it does not really cause to change our outlook for the year," he said.

The sudden weakness has raised expectations the Federal Reserve will cut the benchmark interest rates this year -- possibly twice and as soon as this month -- to support growth after four increases in 2018.

Sand in the gears

Fed policymakers have sent signals in recent days they are open to easing, and are on the lookout for signs of weakness.&nbsp;

"These data make it easier for the Fed to ease either this month or next, if the trade tensions intensify and the stock market drops sharply," economist Ian Shepherdson of Pantheon Macroeconomics said in a research note.

Economist Joel Naroff was more succinct: "The lean, mean job machine has sand in its gears."

A weakening economy also could unnerve Republicans ahead of hotly contested elections in 2020.

Job creation tumbled in the goods-producing and service sectors, while industries such as construction, transportation and temporary help, which had previously been reliable sources of new jobs, hit a rough patch.

Meanwhile, average hourly wages rose 0.2 per cent compared to April to $27.83, disappointing economists who had hoped for slightly stronger gains.

Over the last 12 months, wage gains were 3.1 per cent and have been at or above three per cent for 10 straight months, outpacing increases in consumer inflation but confirming the lack of any upward trend.

With employers continuing to complain of a dearth of available and qualified workers, the size of the labour force was unchanged.

The disappointing number encouraged Wall Street, however, where the three major stock indexes jumped more than one per cent as investors bet on an increased chance of a Fed interest rate cut.

"If the Fed wants evidence the trade dispute has rattled business confidence enough to cause economic problems, a net unchanged employment report with fading wage pressures should do the trick," Chris Low of FTN Financial said in an analysis.

Against the backdrop of worsening trade conflicts, US job creation slowed sharply in May, adding to evidence the economy is weakening and raising expectations the Federal Reserve could cut interest rates soon.

Against the backdrop of worsening trade conflicts, US job creation slowed sharply in May, adding to evidence the economy is weakening and raising expectations the Federal Reserve could cut interest rates soon. Hiring dried up in major industries and wage growth stagnated, and because job growth was worse than previously reported in March and April, hiring was essentially flat last month, the Labor Department reported Friday. With the China trade conflict increasing and a new battle with Mexico set to begin Monday, with dire implications for a host of industries, the unexpectedly steep job slowdown in May heightened fears the world's largest economy is beginning to sputter. US employers added only 75,000 net new positions last month, less than half the 180,000 economists had been expecting, with sudden drops in hiring in healthcare, education and construction. The federal government payroll also shrank unexpectedly by 15,000 workers. The unemployment rate held steady at 3.6 per cent, matching April's level, the lowest since 1969. As he ploughs ahead with his aggressive and unorthodox trade agenda, President Donald Trump has been comforted that vigorous job gains and historically low unemployment provide a buffer against retaliation in tariff battles with major trading partners that have hit the US manufacturing sector in particular. The US economy in July will break the record for its longest-ever expansion but economists expect it to slow a notch in 2019 and the odds of a recession have also increased. The average job gains for the past three months was 151,000 compared to the 12-month average of 196,000, signalling a slowdown in hiring, also attributed to the difficulty of finding workers. Kevin Hassett, the White House's departing chief economist, conceded Friday that the numbers were weaker than expected, but he pointed to special factors. "There really were pretty serious weather effects. There's all this flooding in the Midwest... a lot of the ports had to stop taking traffic," he told CNBC. Hassett estimated weather could have cut the monthly hiring figure by 40,000 positions but the result was still underwhelming. "It's a little bit disappointing but it does not really cause to change our outlook for the year," he said. The sudden weakness has raised expectations the Federal Reserve will cut the benchmark interest rates this year -- possibly twice and as soon as this month -- to support growth after four increases in 2018. Sand in the gears Fed policymakers have sent signals in recent days they are open to easing, and are on the lookout for signs of weakness. "These data make it easier for the Fed to ease either this month or next, if the trade tensions intensify and the stock market drops sharply," economist Ian Shepherdson of Pantheon Macroeconomics said in a research note. Economist Joel Naroff was more succinct: "The lean, mean job machine has sand in its gears." A weakening economy also could unnerve Republicans ahead of hotly contested elections in 2020. Job creation tumbled in the goods-producing and service sectors, while industries such as construction, transportation and temporary help, which had previously been reliable sources of new jobs, hit a rough patch. Meanwhile, average hourly wages rose 0.2 per cent compared to April to $27.83, disappointing economists who had hoped for slightly stronger gains. Over the last 12 months, wage gains were 3.1 per cent and have been at or above three per cent for 10 straight months, outpacing increases in consumer inflation but confirming the lack of any upward trend. With employers continuing to complain of a dearth of available and qualified workers, the size of the labour force was unchanged. The disappointing number encouraged Wall Street, however, where the three major stock indexes jumped more than one per cent as investors bet on an increased chance of a Fed interest rate cut. "If the Fed wants evidence the trade dispute has rattled business confidence enough to cause economic problems, a net unchanged employment report with fading wage pressures should do the trick," Chris Low of FTN Financial said in an analysis.

US hiring slows sharply in May as trade tensions worsen

President Donald Trump on Thursday said the US&nbsp;economy was very strong despite what he said were "unnecessary and destructive actions" taken by the US&nbsp;Federal Reserve, his latest attack on the nation's independent central bank.

"Despite the unnecessary and destructive actions taken by the Fed, the Economy is looking very strong, the China and USMCA deals are moving along nicely, there is little or no Inflation, and USA optimism is very high!," Trump said on Twitter.

USMCA is Trump's designation for a trade pact between the United States, Mexico and Canada that would replace the North American Free Trade Agreement.

Trump has departed from the practice of recent previous administrations of not commenting on Fed interest rate policy, repeatedly criticizing the central bank for a rate-hike campaign it brought to an abrupt end last month.

On Friday, he said the Fed had made a mistake in raising rates, and his top economic adviser said the president felt the central bank should reverse course and cut borrowing cuts.

Several Fed officials have touted the underlying strength of the US&nbsp;economy in recent remarks, arguing that a spate of weak data is likely to prove fleeting. None have said they back a rate cut.

 
&nbsp;

President Donald Trump on Thursday said the US economy was very strong despite what he said were "unnecessary and destructive actions" taken by the US Federal Reserve, his latest attack on the nation's independent central bank.

President Donald Trump on Thursday said the US economy was very strong despite what he said were "unnecessary and destructive actions" taken by the US Federal Reserve, his latest attack on the nation's independent central bank. "Despite the unnecessary and destructive actions taken by the Fed, the Economy is looking very strong, the China and USMCA deals are moving along nicely, there is little or no Inflation, and USA optimism is very high!," Trump said on Twitter. USMCA is Trump's designation for a trade pact between the United States, Mexico and Canada that would replace the North American Free Trade Agreement. Trump has departed from the practice of recent previous administrations of not commenting on Fed interest rate policy, repeatedly criticizing the central bank for a rate-hike campaign it brought to an abrupt end last month. On Friday, he said the Fed had made a mistake in raising rates, and his top economic adviser said the president felt the central bank should reverse course and cut borrowing cuts. Several Fed officials have touted the underlying strength of the US economy in recent remarks, arguing that a spate of weak data is likely to prove fleeting. None have said they back a rate cut.

Trump says US economy strong despite 'destructive actions' by Fed

US President Donald Trump on Monday expressed concern about oil prices and repeated his previous calls on the Organization of the Petroleum Exporting Countries (OPEC) to keep prices steady.

On Monday, oil prices edged up amid political uncertainty and sanctions and involuntary curbs on several producers but could face pressure from continued anxiety over the global economy and record US exports.

"Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!" Trump, whose administration has sanctioned crude from Iran and Venezuela, tweeted.

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Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!
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OPEC members and non-OPEC producers such as Russia are leading efforts to rebalance the market and support oil prices.

Trump, who has made the US economy one of his top issues, has repeatedly tweeted about oil prices and OPEC, airing complaints about higher prices, including ahead of the organizations meeting in December.

US President Donald Trump on Monday expressed concern about oil prices and repeated his previous calls on the Organization of the Petroleum Exporting Countries (OPEC) to keep prices steady.

US President Donald Trump on Monday expressed concern about oil prices and repeated his previous calls on the Organization of the Petroleum Exporting Countries (OPEC) to keep prices steady. On Monday, oil prices edged up amid political uncertainty and sanctions and involuntary curbs on several producers but could face pressure from continued anxiety over the global economy and record US exports. "Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile!" Trump, whose administration has sanctioned crude from Iran and Venezuela, tweeted. Oil prices getting too high. OPEC, please relax and take it easy. World cannot take a price hike - fragile! — Donald J. Trump (@realDonaldTrump) February 25, 2019 × OPEC members and non-OPEC producers such as Russia are leading efforts to rebalance the market and support oil prices. Trump, who has made the US economy one of his top issues, has repeatedly tweeted about oil prices and OPEC, airing complaints about higher prices, including ahead of the organizations meeting in December.

Trump calls on OPEC to 'relax,' says oil prices are too high

The US economy should continue growing this year at the same pace seen in 2018, and there is only a very slim chance of recession, the chief White House economist said Tuesday.

US companies last year used the tax cuts passed at the end of 2017 to boost investment, which should translate in higher output in 2019, Kevin Hassett, chairman of the White House Council of Economic Advisers, told CNBC.

"We're sticking with our guns and we're going to say we're going to have another three per cent year," he said of expectations for growth in the world's largest economy.

That upbeat assessment contrasts with widespread expectations the US economy will cool as the bump from tax cuts and fiscal stimulus last year dissipates.

The non-partisan Congressional Budget Office last month forecast growth of 2.3 per cent this year, down from 3.1 per cent in 2018, while the International Monetary Fund expects a slightly stronger 2.5 per cent growth in 2019, slowing to 1.8 per cent next year.

As of last month, the New York Federal Reserve Bank put the odds of a recession with a year at nearly 24 per cent -- the highest since the Great Recession more than 10 years ago.

But Hassett said given the likely boost to factory output as a result of higher capital investments, the odds of a sustained decline in the economy in 2019 are very low "maybe like one per cent or two per cent or something like that."

Companies "built factories last year. They're going to flip the factories on this year and we're going to get growth from that," he said.

Capital expenditures outside the defence and aviation sectors, seen as a proxy for business investment, softened in the latter part of 2018, government data show, which occurred in tandem with a slowdown in the broader economy.

Critics of 2017's corporate tax cuts have said that rather than just boosting investment, the windfall encouraged record spending on share buybacks, transferring wealth from taxpayers to shareholders.

The US economy should continue growing this year at the same pace seen in 2018, and there is only a very slim chance of recession, the chief White House economist said Tuesday.

The US economy should continue growing this year at the same pace seen in 2018, and there is only a very slim chance of recession, the chief White House economist said Tuesday. US companies last year used the tax cuts passed at the end of 2017 to boost investment, which should translate in higher output in 2019, Kevin Hassett, chairman of the White House Council of Economic Advisers, told CNBC. "We're sticking with our guns and we're going to say we're going to have another three per cent year," he said of expectations for growth in the world's largest economy. That upbeat assessment contrasts with widespread expectations the US economy will cool as the bump from tax cuts and fiscal stimulus last year dissipates. The non-partisan Congressional Budget Office last month forecast growth of 2.3 per cent this year, down from 3.1 per cent in 2018, while the International Monetary Fund expects a slightly stronger 2.5 per cent growth in 2019, slowing to 1.8 per cent next year. As of last month, the New York Federal Reserve Bank put the odds of a recession with a year at nearly 24 per cent -- the highest since the Great Recession more than 10 years ago. But Hassett said given the likely boost to factory output as a result of higher capital investments, the odds of a sustained decline in the economy in 2019 are very low "maybe like one per cent or two per cent or something like that." Companies "built factories last year. They're going to flip the factories on this year and we're going to get growth from that," he said. Capital expenditures outside the defence and aviation sectors, seen as a proxy for business investment, softened in the latter part of 2018, government data show, which occurred in tandem with a slowdown in the broader economy. Critics of 2017's corporate tax cuts have said that rather than just boosting investment, the windfall encouraged record spending on share buybacks, transferring wealth from taxpayers to shareholders.

US economy to see another strong year, recession unlikely: White House

Global uncertainties, including populism and economic slowdown, have cast a shadow over the World Economic Forum (WEF)'s 2019 annual meeting, which officially opened in Davos, Switzerland, on Monday.

As leaders gathered for the annual meeting,&nbsp;WION spoke to the former governor of Reserve Bank of India, Raghuram Rajan&nbsp;who is also attending the event. Speaking to&nbsp;WION's correspondent, Sumit Chaturvedi, Rajan&nbsp;said that there is underlying strength in&nbsp;the global economy.

Commenting on the recent forecast by International Monetary Fund(IMF) on global economic growth, Rajan said he agrees with IMF and said that there are clouds hanging over the world economy as China is underperforming in comparison to its&nbsp;past record&nbsp;and the US is also suffering due to the government shutdown.

"Well, I have no reason to differ from the IMF, there is broadly strength in the underlying economy, there are some clouds, certainly, China is underperforming relative&nbsp;to the past...in the US there are issues like a government shutdown, so we have to wait and see," Rajan&nbsp;said.

Commenting on the World Economic Forum, Rajan said, "It's just started so not much has happened so far..will see what people say, what people think..it's a process of discussion and debate."

Experts have said that the absence of western leaders at the Davos meeting has added to the challenges brought by populism to the globalisation process.

Meanwhile, fears of a global slowdown have jolted markets and forced the US Federal Reserve Bank to signal a pause in its interest rate hike cycle, as investors fret about increasing weak signs in China and the fallout from Sino-US trade frictions.

Data released on Monday showed China's economy cooled in the fourth quarter on faltering domestic demand and bruising US&nbsp;tariffs, dragging 2018 growth to the lowest in nearly three decades.

Topics such as global economic landscape, climate change, artificial intelligence and digitalisation are also on top of the agenda at the WEF.

Global uncertainties, including populism and economic slowdown, have cast a shadow over the World Economic Forum (WEF)'s 2019 annual meeting, which officially opened in Davos, Switzerland, on Monday.

Global uncertainties, including populism and economic slowdown, have cast a shadow over the World Economic Forum (WEF)'s 2019 annual meeting, which officially opened in Davos, Switzerland, on Monday. As leaders gathered for the annual meeting, WION spoke to the former governor of Reserve Bank of India, Raghuram Rajan who is also attending the event. Speaking to WION's correspondent, Sumit Chaturvedi, Rajan said that there is underlying strength in the global economy. Commenting on the recent forecast by International Monetary Fund(IMF) on global economic growth, Rajan said he agrees with IMF and said that there are clouds hanging over the world economy as China is underperforming in comparison to its past record and the US is also suffering due to the government shutdown. "Well, I have no reason to differ from the IMF, there is broadly strength in the underlying economy, there are some clouds, certainly, China is underperforming relative to the past...in the US there are issues like a government shutdown, so we have to wait and see," Rajan said. Commenting on the World Economic Forum, Rajan said, "It's just started so not much has happened so far..will see what people say, what people think..it's a process of discussion and debate." Experts have said that the absence of western leaders at the Davos meeting has added to the challenges brought by populism to the globalisation process. Meanwhile, fears of a global slowdown have jolted markets and forced the US Federal Reserve Bank to signal a pause in its interest rate hike cycle, as investors fret about increasing weak signs in China and the fallout from Sino-US trade frictions. Data released on Monday showed China's economy cooled in the fourth quarter on faltering domestic demand and bruising US tariffs, dragging 2018 growth to the lowest in nearly three decades. Topics such as global economic landscape, climate change, artificial intelligence and digitalisation are also on top of the agenda at the WEF.

Watch: China underperforming relative to past, says Ex RBI chief Raghuram Rajan in Davos

The US&nbsp;economy is taking a larger-than-expected hit from the partial government shutdown, White House estimates showed on Tuesday, as the impasse between President Donald Trump and Democrats over a wall on the southern border dragged into its 25th day.

Trump was expected to host some members of Congress for lunch at 12:30 pm&nbsp;EST (1730 GMT) where the shutdown was sure to be discussed. A guest list was not immediately provided and the White House and congressional leaders declined requests to comment.

Neither Trump nor Democratic congressional leaders have shown signs of bending on the issue of funding the wall that he promised to build along the border with Mexico. Trump is insisting Congress shell out $5.7 billion as about 800,000 federal workers go unpaid during the partial shutdown.

The Trump administration had initially estimated the shutdown would cost the economy 0.1 percentage point in growth every two weeks that employees were without pay.

But on Tuesday, there was an updated figure -&nbsp;0.13 percentage point every week because of the impact of work left undone by 380,000 furloughed employees as well as work left aside by federal contractors, a White House official said.

The partial shutdown is the longest in US&nbsp;history and its effects have begun to reverberate across the country.

Longer lines have formed at some airports as more security screeners fail to show up for work while food and drug inspections have been curtailed and farmers, stung by recent trade spats, have been unable to receive federal aid.

Speaking on CNBC, Delta Air Lines Inc Chief Executive Officer Ed Bastian said the partial shutdown will cost the airline $25 million in lost revenue in January because fewer government contractors are travelling.

Trump ran for office in 2016 on a promise to build a wall to stop illegal immigration and drug trafficking. He had toyed with the prospect of declaring a national emergency to circumvent Congress to secure the funding, but this week has backed off from that idea, which would attract a court challenge.

Democrats, who took over the US&nbsp;House of Representatives this month, have rejected the border wall but back other border security measures.

House Democrats have passed a number of bills to fund the roughly one-quarter of federal operations that have been closed, but Senate Majority Leader Mitch McConnell, a Republican, has said the chamber will not consider legislation that Trump will not sign into law.

McConnell, who has mainly stayed out of the public fray on the shutdown, on Tuesday accused Democrats of "acrobatic contortions" to avoid negotiating on the shutdown.

Representative Hakeem Jeffries, who heads the House Democratic Caucus, said it was up to individual lawmakers to decide whether to accept invitations from the White House to discuss the issue.

“The question that I think everyone can reasonably ask - Is he inviting people to 1600 Pennsylvania Avenue to really try to resolve this problem or to create a photo op so he can project a false sense of bipartisanship?” Jeffries told reporters.

Democratic Representative Katherine Clark said Democrats were unified in restarting government before negotiating on border security.&nbsp;

 
&nbsp;

The US economy is taking a larger-than-expected hit from the partial government shutdown, White House estimates showed on Tuesday, as the impasse between President Donald Trump and Democrats over a wall on the southern border dragged into its 25th day.

The US economy is taking a larger-than-expected hit from the partial government shutdown, White House estimates showed on Tuesday, as the impasse between President Donald Trump and Democrats over a wall on the southern border dragged into its 25th day. Trump was expected to host some members of Congress for lunch at 12:30 pm EST (1730 GMT) where the shutdown was sure to be discussed. A guest list was not immediately provided and the White House and congressional leaders declined requests to comment. Neither Trump nor Democratic congressional leaders have shown signs of bending on the issue of funding the wall that he promised to build along the border with Mexico. Trump is insisting Congress shell out $5.7 billion as about 800,000 federal workers go unpaid during the partial shutdown. The Trump administration had initially estimated the shutdown would cost the economy 0.1 percentage point in growth every two weeks that employees were without pay. But on Tuesday, there was an updated figure - 0.13 percentage point every week because of the impact of work left undone by 380,000 furloughed employees as well as work left aside by federal contractors, a White House official said. The partial shutdown is the longest in US history and its effects have begun to reverberate across the country. Longer lines have formed at some airports as more security screeners fail to show up for work while food and drug inspections have been curtailed and farmers, stung by recent trade spats, have been unable to receive federal aid. Speaking on CNBC, Delta Air Lines Inc Chief Executive Officer Ed Bastian said the partial shutdown will cost the airline $25 million in lost revenue in January because fewer government contractors are travelling. Trump ran for office in 2016 on a promise to build a wall to stop illegal immigration and drug trafficking. He had toyed with the prospect of declaring a national emergency to circumvent Congress to secure the funding, but this week has backed off from that idea, which would attract a court challenge. Democrats, who took over the US House of Representatives this month, have rejected the border wall but back other border security measures. House Democrats have passed a number of bills to fund the roughly one-quarter of federal operations that have been closed, but Senate Majority Leader Mitch McConnell, a Republican, has said the chamber will not consider legislation that Trump will not sign into law. McConnell, who has mainly stayed out of the public fray on the shutdown, on Tuesday accused Democrats of "acrobatic contortions" to avoid negotiating on the shutdown. Representative Hakeem Jeffries, who heads the House Democratic Caucus, said it was up to individual lawmakers to decide whether to accept invitations from the White House to discuss the issue. “The question that I think everyone can reasonably ask - Is he inviting people to 1600 Pennsylvania Avenue to really try to resolve this problem or to create a photo op so he can project a false sense of bipartisanship?” Jeffries told reporters. Democratic Representative Katherine Clark said Democrats were unified in restarting government before negotiating on border security.

Government shutdown taking larger-than-expected toll on US economy

The <a href="http://www.wionews.com/world/trump-says-record-long-government-shutdown-could-be-resolved-in-15-minutes-189918">US government shutdown</a> on Saturday became the longest in history and is taking a growing bite out of the world's largest economy with each passing day, economists say.

While most of the 21 "lapses" in government spending since 1976 left barely a scratch on economic growth, the length of this shutdown makes it harder to say just how bad the impact could get.

"It's not a hard stretch to say that initially it's smaller and then it expands, the pain starts to widen," Beth Ann Bovino, chief US economist at S&amp;P Global Ratings, told AFP. "Think of it as a butterfly effect."

With about a quarter of the federal workforce affected, the shutdown is currently squeezing an estimated $1.2 billion a week out of the economy, Bovino said, but that figure could grow if it drags on.

At the current rate, within two weeks it will have cost America more than the $5.7 billion <a href="http://www.wionews.com/world/was-trump-working-for-russia-us-president-blasts-fbi-for-opening-probe-189894">US President Donald Trump</a> is demanding for a wall on the border with Mexico, the dispute with Congress that led to the failure to pass funding for government operations.

Following extended closures in 1995 and 2013, the US economy continued to grow while stock markets mainly went sideways.

And GDP growth lost in one quarter can rebound in the next as the government springs back to life and workers recoup lost salaries. But some losses can never be recovered.

In myriad but often unseen ways, the $4 trillion federal budget is felt in the daily lives of all Americans, well beyond the 800,000 government workers now going without pay -- many of whom missed their first paychecks on Friday.

Switching off even a part of the government means that life force quickly begins to bleed away.

Payments to farmers and poor families, craft beer labels, food inspections and economic data all have fallen victim to the budget impasse.&nbsp;

Meanwhile, tax refunds and borrower income verifications crucial to the mortgage industry were briefly up in the air with billions at stake.

"The tentacles start to touch many avenues of life and that's a very sad thing," Bovino said.

US Coast Guard cutters, their crews working without pay, on Monday began icebreaking at commercial ports in the frigid waters of Great Lakes near the Canadian border so local steel mills can remain supplied with iron ore.

Meanwhile, farmers cannot collect aid payments designed to help ease the pain caused by Trump's trade war with China.

Hurting the poorest most&nbsp;

Small Business Administration loans to help mom-and-pop businesses trying to invest, hire and grow have been delayed.

There are no government loans for seeds or cattle feed and none of the regular Agriculture Department data about crop yields and commodity prices that farmers depend on to plan for the coming year.

Permits from some oil and gas drilling -- which feeds into GDP calculations -- are delayed.

Bloomberg estimates that government contractors are losing $200 million a day, cutting revenues for defense industry giants like Boeing, General Dynamics and Leidos.

Tourism at the country's 400 national parks normally generates a reported $18 million a day, but with some parks unattended and many services halted, local restaurants, hotels and shops are losing customers.

Government assistance to feed the poorest Americans is funded through next month only.

None of this includes the hardships felt by the 380,000 federal workers who have been furloughed or the 420,000 who are deemed "essential" but are working without pay.

They owe an estimated $438 million a month in rent and mortgage payments, according to the real estate firm Zillow.

Around the Washington region, home to about 20 percent of the federal work force, restaurants are sitting empty, taxis are idled and traffic increasingly moves with eerie ease along the capital's choked boulevards.

Yingrui Huang, an engineer for a defense contractor at NASA's Goddard Space Flight Center in Maryland, told AFP his company is normally at work building weather satellites and telescopes for the government but is shuttered until further notice.

To fight boredom, he is now driving for the mobile ride hailing service Lyft but said he was most concerned hourly employees like janitors, cafeteria workers and secretaries.

"Their salaries are definitely lower than most of the engineering staff. They don't get the limelight. We don't think about them," he said.

Economic research on the last major shutdown in October 2013 found many federal workers were largely able to avoid sinking into debt -- delaying mortgage payments and shifting balances between credit cards.

But that shutdown lasted for barely two weeks -- one pay cycle -- and lawmakers at the time had quickly promised workers would receive back pay.

"It's possible that the effects will be greater for this shutdown," University of Chicago economist Constantine Yannelis, who studied the 2013 shutdown, told AFP.

"The longer a shutdown lasts, the more persistent a change in habits you could see."

The US government shutdown on Saturday became the longest in history and is taking a growing bite out of the world's largest economy with each passing day, economists say.

The US government shutdown on Saturday became the longest in history and is taking a growing bite out of the world's largest economy with each passing day, economists say. While most of the 21 "lapses" in government spending since 1976 left barely a scratch on economic growth, the length of this shutdown makes it harder to say just how bad the impact could get. "It's not a hard stretch to say that initially it's smaller and then it expands, the pain starts to widen," Beth Ann Bovino, chief US economist at S&P Global Ratings, told AFP. "Think of it as a butterfly effect." With about a quarter of the federal workforce affected, the shutdown is currently squeezing an estimated $1.2 billion a week out of the economy, Bovino said, but that figure could grow if it drags on. At the current rate, within two weeks it will have cost America more than the $5.7 billion US President Donald Trump is demanding for a wall on the border with Mexico, the dispute with Congress that led to the failure to pass funding for government operations. Following extended closures in 1995 and 2013, the US economy continued to grow while stock markets mainly went sideways. And GDP growth lost in one quarter can rebound in the next as the government springs back to life and workers recoup lost salaries. But some losses can never be recovered. In myriad but often unseen ways, the $4 trillion federal budget is felt in the daily lives of all Americans, well beyond the 800,000 government workers now going without pay -- many of whom missed their first paychecks on Friday. Switching off even a part of the government means that life force quickly begins to bleed away. Payments to farmers and poor families, craft beer labels, food inspections and economic data all have fallen victim to the budget impasse. Meanwhile, tax refunds and borrower income verifications crucial to the mortgage industry were briefly up in the air with billions at stake. "The tentacles start to touch many avenues of life and that's a very sad thing," Bovino said. US Coast Guard cutters, their crews working without pay, on Monday began icebreaking at commercial ports in the frigid waters of Great Lakes near the Canadian border so local steel mills can remain supplied with iron ore. Meanwhile, farmers cannot collect aid payments designed to help ease the pain caused by Trump's trade war with China. Hurting the poorest most Small Business Administration loans to help mom-and-pop businesses trying to invest, hire and grow have been delayed. There are no government loans for seeds or cattle feed and none of the regular Agriculture Department data about crop yields and commodity prices that farmers depend on to plan for the coming year. Permits from some oil and gas drilling -- which feeds into GDP calculations -- are delayed. Bloomberg estimates that government contractors are losing $200 million a day, cutting revenues for defense industry giants like Boeing, General Dynamics and Leidos. Tourism at the country's 400 national parks normally generates a reported $18 million a day, but with some parks unattended and many services halted, local restaurants, hotels and shops are losing customers. Government assistance to feed the poorest Americans is funded through next month only. None of this includes the hardships felt by the 380,000 federal workers who have been furloughed or the 420,000 who are deemed "essential" but are working without pay. They owe an estimated $438 million a month in rent and mortgage payments, according to the real estate firm Zillow. Around the Washington region, home to about 20 percent of the federal work force, restaurants are sitting empty, taxis are idled and traffic increasingly moves with eerie ease along the capital's choked boulevards. Yingrui Huang, an engineer for a defense contractor at NASA's Goddard Space Flight Center in Maryland, told AFP his company is normally at work building weather satellites and telescopes for the government but is shuttered until further notice. To fight boredom, he is now driving for the mobile ride hailing service Lyft but said he was most concerned hourly employees like janitors, cafeteria workers and secretaries. "Their salaries are definitely lower than most of the engineering staff. They don't get the limelight. We don't think about them," he said. Economic research on the last major shutdown in October 2013 found many federal workers were largely able to avoid sinking into debt -- delaying mortgage payments and shifting balances between credit cards. But that shutdown lasted for barely two weeks -- one pay cycle -- and lawmakers at the time had quickly promised workers would receive back pay. "It's possible that the effects will be greater for this shutdown," University of Chicago economist Constantine Yannelis, who studied the 2013 shutdown, told AFP. "The longer a shutdown lasts, the more persistent a change in habits you could see."

US shutdown sends economy into uncharted waters

President Donald Trump blasted the Federal Reserve on Monday, describing it as the "only problem" for the US&nbsp;economy, as top officials convened to discuss the growing rout in stock markets caused in part by the president's attacks on the central bank.

Stocks fell again on Monday amid concern about slowing economic growth, the government shutdown and reports that <a href="http://www.wionews.com/world/trump-has-discussed-firing-us-federal-reserve-chairman-powell-report-185879">Trump had discussed firing Federal Reserve Chairman Jerome Powell</a>, whom he has repeatedly criticised for raising interest rates.

US&nbsp;stocks have dropped sharply in recent weeks on concerns over weaker economic growth. The S&amp;P 500 index was on pace for its biggest percentage decline in December since the Great Depression.

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<blockquote class="twitter-tweet" data-lang="en">
The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt!
— Donald J. Trump (@realDonaldTrump) <a href="https://twitter.com/realDonaldTrump/status/1077231267559755776?ref_src=twsrc%5Etfw">December 24, 2018</a></blockquote>
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In a tweet that did nothing to ease market concerns about the Fed's cherished independence, the Republican president laid the blame for economic headwinds firmly at the feet of the central bank.

"The only problem our economy has is the Fed. They don't have a feel for the market," Trump said on Twitter. "The Fed is like a powerful golfer who can't score because he has no touch - he can't putt!"

In addition to frequently criticising the Fed's rate hikes this year, Trump has gone after Powell several times, telling Reuters in August he was "not thrilled" with his own appointee. The Fed hiked interest rates again last week, as had been widely expected.

A crisis call on Monday between US&nbsp;financial regulators and the Treasury Department did more to rattle markets than to assure them.

All three major indexes ended down more than 2 percent on the day before the Christmas holiday. The S&amp;P 500 ended down about 19.8 percent from its Sept. 20 closing high, just shy of the 20 percent threshold that commonly defines a bear market.

Oil prices followed equities down, tumbling more than 6 percent to the lowest level in over a year.

Treasury Secretary Steven Mnuchin hosted a call with the president's Working Group on Financial Markets, a body known colloquially as the "Plunge Protection team," which normally only convenes during times of heavy market volatility.

Regulators on the call said they were not seeing anything out of the ordinary in financial markets during the recent sell-off and also discussed how they will continue critical operations during the partial government shutdown, according to two sources familiar with the matter.

On Sunday, Mnuchin made calls to top US&nbsp;bankers and got reassurances that banks were still able to make loans, the Treasury said.

Markets lower again

If Mnuchin’s efforts were meant to soothe markets, that was not evident on Monday.

"When the Dow is down 600 points it's hard to say it was a positive," said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago. "Although his intention was a very good one, the net feeling I think was, ‘Is there a bigger problem that we don't know about?’"

Representative Maxine Waters, the top Democrat on the House of Representatives Financial Services Committee, said in a statement that Trump and Mnuchin's actions "have been erratic and are creating uncertainty and instability in the markets."

Wall Street is closely following reports that Trump had privately discussed the possibility of firing Powell, who became the Fed chief early last February after being appointed by Trump and has continued the path of gradual rate hikes started by his predecessor, Janet Yellen.

Mnuchin said on Saturday that Trump told him he had "never suggested firing" Powell.

Still, just the public suggestion that Trump might try to interfere so deeply with the Fed was unsettling to financial markets that have long operated on the presumption of the US&nbsp;central bank's independence from political meddling.

Adding to the disquiet is the lack of clarity over whether Trump could in fact dismiss Powell.

Sarah Binder, a professor of political science at George Washington University, said it was “ambiguous legally” whether Trump could remove Powell from the chairman role.

The Federal Reserve Act is clear that Powell can only be removed from the Fed’s board of governors “for cause,” which is generally understood to mean malfeasance, rather than disagreements over interest rates, Binder said.

But it may be lawful for Trump to remove Powell from the chairman role, Binder said. When Congress last amended the statute in 1977, it did not address whether removal from the chairman role must be “for cause,” she said.

Troubles in Washington have escalated in recent days with a partial government shutdown that began on Saturday following an impasse in Congress over funds for a wall on the border with Mexico. Defense Secretary Jim Mattis' resignation on Thursday after Trump's surprise decision to pull US&nbsp;troops out of Syria also unsettled investors.

But Mnuchin's response to the market concerns was seen as an overreaction in Wall Street circles.

"It seems unexpected, abrupt and unnecessary," said Michael Purves, chief global strategist at Weeden &amp; Co in Greenwich, Connecticut.

President Donald Trump blasted the Federal Reserve on Monday, describing it as the "only problem" for the US economy, as top officials convened to discuss the growing rout in stock markets caused in part by the president's attacks on the central bank.

President Donald Trump blasted the Federal Reserve on Monday, describing it as the "only problem" for the US economy, as top officials convened to discuss the growing rout in stock markets caused in part by the president's attacks on the central bank. Stocks fell again on Monday amid concern about slowing economic growth, the government shutdown and reports that Trump had discussed firing Federal Reserve Chairman Jerome Powell, whom he has repeatedly criticised for raising interest rates. US stocks have dropped sharply in recent weeks on concerns over weaker economic growth. The S&P 500 index was on pace for its biggest percentage decline in December since the Great Depression. The only problem our economy has is the Fed. They don’t have a feel for the Market, they don’t understand necessary Trade Wars or Strong Dollars or even Democrat Shutdowns over Borders. The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt! — Donald J. Trump (@realDonaldTrump) December 24, 2018 × In a tweet that did nothing to ease market concerns about the Fed's cherished independence, the Republican president laid the blame for economic headwinds firmly at the feet of the central bank. "The only problem our economy has is the Fed. They don't have a feel for the market," Trump said on Twitter. "The Fed is like a powerful golfer who can't score because he has no touch - he can't putt!" In addition to frequently criticising the Fed's rate hikes this year, Trump has gone after Powell several times, telling Reuters in August he was "not thrilled" with his own appointee. The Fed hiked interest rates again last week, as had been widely expected. A crisis call on Monday between US financial regulators and the Treasury Department did more to rattle markets than to assure them. All three major indexes ended down more than 2 percent on the day before the Christmas holiday. The S&P 500 ended down about 19.8 percent from its Sept. 20 closing high, just shy of the 20 percent threshold that commonly defines a bear market. Oil prices followed equities down, tumbling more than 6 percent to the lowest level in over a year. Treasury Secretary Steven Mnuchin hosted a call with the president's Working Group on Financial Markets, a body known colloquially as the "Plunge Protection team," which normally only convenes during times of heavy market volatility. Regulators on the call said they were not seeing anything out of the ordinary in financial markets during the recent sell-off and also discussed how they will continue critical operations during the partial government shutdown, according to two sources familiar with the matter. On Sunday, Mnuchin made calls to top US bankers and got reassurances that banks were still able to make loans, the Treasury said. Markets lower again If Mnuchin’s efforts were meant to soothe markets, that was not evident on Monday. "When the Dow is down 600 points it's hard to say it was a positive," said J.J. Kinahan, chief market strategist at TD Ameritrade in Chicago. "Although his intention was a very good one, the net feeling I think was, ‘Is there a bigger problem that we don't know about?’" Representative Maxine Waters, the top Democrat on the House of Representatives Financial Services Committee, said in a statement that Trump and Mnuchin's actions "have been erratic and are creating uncertainty and instability in the markets." Wall Street is closely following reports that Trump had privately discussed the possibility of firing Powell, who became the Fed chief early last February after being appointed by Trump and has continued the path of gradual rate hikes started by his predecessor, Janet Yellen. Mnuchin said on Saturday that Trump told him he had "never suggested firing" Powell. Still, just the public suggestion that Trump might try to interfere so deeply with the Fed was unsettling to financial markets that have long operated on the presumption of the US central bank's independence from political meddling. Adding to the disquiet is the lack of clarity over whether Trump could in fact dismiss Powell. Sarah Binder, a professor of political science at George Washington University, said it was “ambiguous legally” whether Trump could remove Powell from the chairman role. The Federal Reserve Act is clear that Powell can only be removed from the Fed’s board of governors “for cause,” which is generally understood to mean malfeasance, rather than disagreements over interest rates, Binder said. But it may be lawful for Trump to remove Powell from the chairman role, Binder said. When Congress last amended the statute in 1977, it did not address whether removal from the chairman role must be “for cause,” she said. Troubles in Washington have escalated in recent days with a partial government shutdown that began on Saturday following an impasse in Congress over funds for a wall on the border with Mexico. Defense Secretary Jim Mattis' resignation on Thursday after Trump's surprise decision to pull US troops out of Syria also unsettled investors. But Mnuchin's response to the market concerns was seen as an overreaction in Wall Street circles. "It seems unexpected, abrupt and unnecessary," said Michael Purves, chief global strategist at Weeden & Co in Greenwich, Connecticut.

Trump attacks US central bank, says it is 'only problem' in economy

In the past, when the United States imported most of its energy needs, declining oil prices were a bounty to households and businesses, according to a Dow Jones Newswires report.

A rule of thumb was simple: Oil-price drops boosted US economic output.

That's become more complicated. As the US has risen to become the world's largest oil producer this year, a growing chunk of domestic investment, manufacturing output and employment has become tied to oil.

Now, when oil prices fall, it risks hurting investment and hiring in important parts of the economy.

At the same time, a decades-long transition toward more energy-efficient living has left businesses and consumers less sensitive to prices at the pump, meaning they don't benefit as much when prices fall.

Some economists still believe lower oil prices are a net economic positive, but the resurgence of the US oil industry has upended the conventional wisdom held by many, including President Donald Trump, who has recently issued a flurry of tweets calling for even cheaper crude.

"Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let's go lower!" Trump tweeted on November 21.

Oil companies, setting capital-expenditure plans for the next year, could be spooked into cutting budgets if prices keep sliding. Crude oil futures have lost a third of their value in less than two months.

"He's living in the old world," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said of Trump's comments in recent weeks cheering the price declines. "That's the very last thing he should be wishing for."

In the past, the US oil industry focused on the Gulf of Mexico, where massive deep-water wells required large up-front investments that pumped vast quantities of oil for a decade or more at relatively low operating costs.

Output was dominated by big companies such as Exxon Mobil Corp. and Royal Dutch Shell PLC, which carried little debt.

As a result, energy investment was relatively unresponsive to short-term price fluctuations, while a drop in gasoline prices immediately left consumers with more cash to save or spend on other goods and services.

Then the equation changed.

Fuel-efficient vehicles and a long transition away from heavy industry mean the US economy now consumes just 0.4 barrels of oil to produce $1,000 of gross domestic product, down from 1.1 barrels in 1972, said Martin Stuermer, a senior research economist at the Dallas Fed.

In contrast to the Gulf of Mexico's heyday, most US oil nowadays is extracted from a vast number of comparatively tiny deposits trapped in shale rock.

Since wells are exhausted quickly, the process requires near-constant drilling by a constellation of smaller companies that, compared to the traditional oil majors, use a lot of debt.

This makes both production and investment sensitive to lower prices, which can lead to sudden bankruptcies or declines in cash flow that squeeze investment plans.

Large shale-oil companies, such as EOG Resources Inc. and Whiting Petroleum Corp., have characterized the current price around $50 a barrel as an inflection point, below which they would reduce drilling.

"If oil went down to $40 and stayed there, yes, you would see a reduction in [spending] and a reduction in US production growth," said Chris Wright, the chief executive of Liberty Oilfield Services Inc., a hydraulic fracturing company that works for oil producers.

Economic data from the last big downturn in oil prices reflect the new dynamic. Months after oil prices began falling from their mid-2014 peak of $105 a barrel, drilling slowed.

By late 2016, private investment in oil and natural gas exploration and wells had fallen by two-thirds, and the oil-and-gas industry had shed nearly 190,000 jobs.

The negative effects of the price downturn were most acute in oil-producing regions like Texas and North Dakota, but national measures of business investment slowed, too, and overall expansion of GDP sputtered.

It's still difficult to map the complete footprint of oil in the US economy.

The Bureau of Economic Analysis estimates business investment in petroleum and natural gas structures at $137.48 billion annually.

While that's less than half of what consumers spend on gasoline and motor fuel - $324.51 billion - it includes none of the homes, hospitals and strip malls that pop up in regions that pump oil.

"A decline in oil prices now has negative spillovers to US aggregate investment," said Nida Cakir Melek, an economist at the Federal Reserve Bank of Kansas City.

Joseph Jaquez, who runs his family's store, Airlawn Furniture in Pecos, Texas, said the oil boom created a windfall for his business in the heart of the Permian basin when thousands of workers flocked to the area.

His sales of mattresses boomed to the temporary housing facilities that popped up in town.

"Our situation here in town is not one that many people can comprehend," Jaquez said.

Shepherdson, the economist, said it's not a coincidence that the 2014-16 period of falling oil prices was followed by a marked slowdown in broader economic growth. 
The recent price downturn, he estimates, will subtract 0.3 percentage points from US GDP growth over the next year or so.

In the past, when the United States imported most of its energy needs, declining oil prices were a bounty to households and businesses, according to a Dow Jones Newswires report.

In the past, when the United States imported most of its energy needs, declining oil prices were a bounty to households and businesses, according to a Dow Jones Newswires report. A rule of thumb was simple: Oil-price drops boosted US economic output. That's become more complicated. As the US has risen to become the world's largest oil producer this year, a growing chunk of domestic investment, manufacturing output and employment has become tied to oil. Now, when oil prices fall, it risks hurting investment and hiring in important parts of the economy. At the same time, a decades-long transition toward more energy-efficient living has left businesses and consumers less sensitive to prices at the pump, meaning they don't benefit as much when prices fall. Some economists still believe lower oil prices are a net economic positive, but the resurgence of the US oil industry has upended the conventional wisdom held by many, including President Donald Trump, who has recently issued a flurry of tweets calling for even cheaper crude. "Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let's go lower!" Trump tweeted on November 21. Oil companies, setting capital-expenditure plans for the next year, could be spooked into cutting budgets if prices keep sliding. Crude oil futures have lost a third of their value in less than two months. "He's living in the old world," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said of Trump's comments in recent weeks cheering the price declines. "That's the very last thing he should be wishing for." In the past, the US oil industry focused on the Gulf of Mexico, where massive deep-water wells required large up-front investments that pumped vast quantities of oil for a decade or more at relatively low operating costs. Output was dominated by big companies such as Exxon Mobil Corp. and Royal Dutch Shell PLC, which carried little debt. As a result, energy investment was relatively unresponsive to short-term price fluctuations, while a drop in gasoline prices immediately left consumers with more cash to save or spend on other goods and services. Then the equation changed. Fuel-efficient vehicles and a long transition away from heavy industry mean the US economy now consumes just 0.4 barrels of oil to produce $1,000 of gross domestic product, down from 1.1 barrels in 1972, said Martin Stuermer, a senior research economist at the Dallas Fed. In contrast to the Gulf of Mexico's heyday, most US oil nowadays is extracted from a vast number of comparatively tiny deposits trapped in shale rock. Since wells are exhausted quickly, the process requires near-constant drilling by a constellation of smaller companies that, compared to the traditional oil majors, use a lot of debt. This makes both production and investment sensitive to lower prices, which can lead to sudden bankruptcies or declines in cash flow that squeeze investment plans. Large shale-oil companies, such as EOG Resources Inc. and Whiting Petroleum Corp., have characterized the current price around $50 a barrel as an inflection point, below which they would reduce drilling. "If oil went down to $40 and stayed there, yes, you would see a reduction in [spending] and a reduction in US production growth," said Chris Wright, the chief executive of Liberty Oilfield Services Inc., a hydraulic fracturing company that works for oil producers. Economic data from the last big downturn in oil prices reflect the new dynamic. Months after oil prices began falling from their mid-2014 peak of $105 a barrel, drilling slowed. By late 2016, private investment in oil and natural gas exploration and wells had fallen by two-thirds, and the oil-and-gas industry had shed nearly 190,000 jobs. The negative effects of the price downturn were most acute in oil-producing regions like Texas and North Dakota, but national measures of business investment slowed, too, and overall expansion of GDP sputtered. It's still difficult to map the complete footprint of oil in the US economy. The Bureau of Economic Analysis estimates business investment in petroleum and natural gas structures at $137.48 billion annually. While that's less than half of what consumers spend on gasoline and motor fuel - $324.51 billion - it includes none of the homes, hospitals and strip malls that pop up in regions that pump oil. "A decline in oil prices now has negative spillovers to US aggregate investment," said Nida Cakir Melek, an economist at the Federal Reserve Bank of Kansas City. Joseph Jaquez, who runs his family's store, Airlawn Furniture in Pecos, Texas, said the oil boom created a windfall for his business in the heart of the Permian basin when thousands of workers flocked to the area. His sales of mattresses boomed to the temporary housing facilities that popped up in town. "Our situation here in town is not one that many people can comprehend," Jaquez said. Shepherdson, the economist, said it's not a coincidence that the 2014-16 period of falling oil prices was followed by a marked slowdown in broader economic growth. The recent price downturn, he estimates, will subtract 0.3 percentage points from US GDP growth over the next year or so.

Falling oil prices hurt US economy. Here's why

President Donald Trump said Friday that China was ready to make a deal to defuse trade tensions, so he might not have to punish the country with more import tariffs.

A deal to resolve the dispute would be a huge breakthrough on the issue that has dominated much of Trump's two years in office, blowback from which threatens to take the steam out of the US economy.

"China wants to make a deal," Trump told reporters. "They sent a list of things that they are willing to do."

While the offer is not acceptable yet, he said he was optimistic for an agreement to get "reciprocal" trade.

Trump this year has imposed steep tariffs on $250 billion of Chinese goods and has threatened to hit the remaining $267 billion in products the US imports from the world's number two economy each year.

US companies and farmers have complained of lost business and rising prices for key components as a result of the trade friction and that was a factor in some of the contests in the midterm congressional elections early this month.

"I think a deal will be made and we will find out very soon," Trump said, noting Beijing's list included 142 items and includes "a lot of the things we asked for."

"Some things were left off. We will probably get them, too," he said.

Tariff increase

But the statements seemed to contradict comments from Trump's Commerce Secretary Wilbur Ross, who just hours earlier had said a deal with Beijing before January was "impossible."

Trump is due to meet with China's President Xi Jinping late this month in Buenos Aires on the sidelines of the Group of 20 leaders summit.

However, Ross said those talks would serve as a framework to resolving the dispute. "We certainly won't have a full formal deal by January. Impossible," he said, according to Bloomberg.

The January date is key since the 10 per cent tariffs in place on $200 billion in annual imports from China is due to increase to 25 per cent.

Trump indicated he will continue to continue to take a hard line with China until the country changes.

US officials have highlighted high Chinese tariffs but also the country's trade and investment rules that allows rampant theft of American technology.

"We have to have reciprocal trade," he said. "We can't have trade meant for stupid people. That's the way they took advantage of our country."

US stocks jumped following Trump's remarks, but quickly retreated although the benchmark Dow Jones Industrial Average ended the day with a slight increase.

Investors are hoping for a deal soon to end the uncertainty which hurts the bottom line for many companies as well as increasing prices for consumers.

Some firms have even warned that they might have to postpone investment plans if they cannot insure a steady supply of material.

Economists say the tariffs' full bite has yet to hit the American economy but the trade conflict comes at a bad time for China, which is seeing slower growth.

In addition, Chad Bown of the Peterson Institute for International Economics, who has been studying the impact of the trade tariffs closely, said in a report on Thursday that Trump's tariffs on steel, which largely targeted China and other big producers, were inflicting collateral damage on poorer nations that are small producers and pose no threat to the US economy.

President Donald Trump said Friday that China was ready to make a deal to defuse trade tensions, so he might not have to punish the country with more import tariffs.

President Donald Trump said Friday that China was ready to make a deal to defuse trade tensions, so he might not have to punish the country with more import tariffs. A deal to resolve the dispute would be a huge breakthrough on the issue that has dominated much of Trump's two years in office, blowback from which threatens to take the steam out of the US economy. "China wants to make a deal," Trump told reporters. "They sent a list of things that they are willing to do." While the offer is not acceptable yet, he said he was optimistic for an agreement to get "reciprocal" trade. Trump this year has imposed steep tariffs on $250 billion of Chinese goods and has threatened to hit the remaining $267 billion in products the US imports from the world's number two economy each year. US companies and farmers have complained of lost business and rising prices for key components as a result of the trade friction and that was a factor in some of the contests in the midterm congressional elections early this month. "I think a deal will be made and we will find out very soon," Trump said, noting Beijing's list included 142 items and includes "a lot of the things we asked for." "Some things were left off. We will probably get them, too," he said. Tariff increase But the statements seemed to contradict comments from Trump's Commerce Secretary Wilbur Ross, who just hours earlier had said a deal with Beijing before January was "impossible." Trump is due to meet with China's President Xi Jinping late this month in Buenos Aires on the sidelines of the Group of 20 leaders summit. However, Ross said those talks would serve as a framework to resolving the dispute. "We certainly won't have a full formal deal by January. Impossible," he said, according to Bloomberg. The January date is key since the 10 per cent tariffs in place on $200 billion in annual imports from China is due to increase to 25 per cent. Trump indicated he will continue to continue to take a hard line with China until the country changes. US officials have highlighted high Chinese tariffs but also the country's trade and investment rules that allows rampant theft of American technology. "We have to have reciprocal trade," he said. "We can't have trade meant for stupid people. That's the way they took advantage of our country." US stocks jumped following Trump's remarks, but quickly retreated although the benchmark Dow Jones Industrial Average ended the day with a slight increase. Investors are hoping for a deal soon to end the uncertainty which hurts the bottom line for many companies as well as increasing prices for consumers. Some firms have even warned that they might have to postpone investment plans if they cannot insure a steady supply of material. Economists say the tariffs' full bite has yet to hit the American economy but the trade conflict comes at a bad time for China, which is seeing slower growth. In addition, Chad Bown of the Peterson Institute for International Economics, who has been studying the impact of the trade tariffs closely, said in a report on Thursday that Trump's tariffs on steel, which largely targeted China and other big producers, were inflicting collateral damage on poorer nations that are small producers and pose no threat to the US economy.

Trump opens door to trade deal with China soon

Control of the US Congress hangs in the balance in hard-fought midterm elections next month. And, even with a booming economy, the party in power does not have the wind at its back.

The lowest unemployment level in nearly 50 years has also not substantially lifted President Donald Trump's standing in opinion polls, and he remains among the least popular US leaders of the last 70 years.&nbsp;

Forecasts point to solid chances that Democrats could wrest control of the House of Representatives away from Republicans, drastically shifting the political landscape in Washington.

Below are some facts on the recent run of the world's largest economy.

How good is the economy?

Quite. By most measures, it is unusually strong. US Federal Reserve Chairman Jerome Powell said last week the outlook was "remarkably positive." &nbsp;&nbsp;

GDP grew at a 4.2 per cent clip in the second quarter, the strongest in nearly four years and the fastest among advanced economies -- though it was helped by a few one-off factors that are unlikely to be replicated later in the year.

The last time the unemployment rate was this low -- 3.7 per cent -- president Richard Nixon was enacting tax reform and The Beatles were breaking up.&nbsp; 
Inflation is rising only slowly, but enough to eat into wages, which also are growing sluggishly.

Job creation through September has averaged 218,000 net new positions a month so far this year, the fastest rate since 2015.

Consumer and business confidence, as well as measures of services and manufacturing activity, are all at historically high levels.&nbsp;

But the housing sector, which can be a leading indicator in the economic cycle, appears in decline, with building and sales steadily weakening.

Wall Street also has been very happy for much of the past 20 months, repeatedly smashing records.

But economist Jared Bernstein, adviser to former Vice President Joe Biden, notes that prosperity has not been evenly shared.

Corporate after-tax profits rose 14.9 percent in the first six quarters of the Trump era, but mid-level hourly wages gained only 0.5 percent in the same period.

Credit to Trump or Obama ?

Economists caution against attributing economic performance, good or bad, solely to presidents.

Trump has forcefully claimed ownership for the current economy but it was former President Barack Obama who presided over most of the recovery.

"There's no question that there's a mixture of credit involved. President Obama took office during the worst downturn since the Great Depression," Douglas Holtz-Eakin, a Republican former director of the Congressional Budget Office, told AFP.

But Trump has slashed taxes and regulations to energize businesses, Holtz-Eakin said.

Following December's tax cuts and a big spending package enacted in February, the US economy does appear to be growing faster than it did in the prior two years -- for now -- and business investment picked up.

The International Monetary Fund in July forecast US growth of 2.9 per cent for 2018, which would match the expansion in 2015 under Obama.

But as unemployment has fallen and available workers have become scarce, job growth has actually slowed under Trump.

Since January 2017, the economy had added 3.9 million jobs. But in the final 21 months of Obama's presidency, there were 4.5 million net new positions created.

And, since peaking at 10 per cent in October 2009, the US unemployment rate has fallen 6.3 percentage points: 5.3 points of that was under Obama and just one under Trump.

What are the risks?

Predicting recessions is a notoriously difficult task. But economists say dangers to the US economy, and the odds of a downturn, are growing.

The trade war with China, America's largest trading partner, already is causing "chaos" for US electronics manufacturers, according to the Institute for Supply Management, with the hit to US supply chains likely to show up in economic data in the near future.

And there are no negotiations between Washington and Beijing currently scheduled.

As the Fed raises lending rates, there is a growing risk of popping an asset bubble created by years of easy money from the Fed -- and thus wiping out household wealth and tipping the economy into recession.

Economic contagion could also spread from emerging markets as they suffer capital flight, falling currency values and rising debt costs.

Record high global debt is a key risk flagged by the IMF, as it reached an all-time high of $182 trillion -- almost 60 per cent higher than in 2007.

Control of the US Congress hangs in the balance in hard-fought midterm elections next month. And, even with a booming economy, the party in power does not have the wind at its back.

Control of the US Congress hangs in the balance in hard-fought midterm elections next month. And, even with a booming economy, the party in power does not have the wind at its back. The lowest unemployment level in nearly 50 years has also not substantially lifted President Donald Trump's standing in opinion polls, and he remains among the least popular US leaders of the last 70 years. Forecasts point to solid chances that Democrats could wrest control of the House of Representatives away from Republicans, drastically shifting the political landscape in Washington. Below are some facts on the recent run of the world's largest economy. How good is the economy? Quite. By most measures, it is unusually strong. US Federal Reserve Chairman Jerome Powell said last week the outlook was "remarkably positive." GDP grew at a 4.2 per cent clip in the second quarter, the strongest in nearly four years and the fastest among advanced economies -- though it was helped by a few one-off factors that are unlikely to be replicated later in the year. The last time the unemployment rate was this low -- 3.7 per cent -- president Richard Nixon was enacting tax reform and The Beatles were breaking up. Inflation is rising only slowly, but enough to eat into wages, which also are growing sluggishly. Job creation through September has averaged 218,000 net new positions a month so far this year, the fastest rate since 2015. Consumer and business confidence, as well as measures of services and manufacturing activity, are all at historically high levels. But the housing sector, which can be a leading indicator in the economic cycle, appears in decline, with building and sales steadily weakening. Wall Street also has been very happy for much of the past 20 months, repeatedly smashing records. But economist Jared Bernstein, adviser to former Vice President Joe Biden, notes that prosperity has not been evenly shared. Corporate after-tax profits rose 14.9 percent in the first six quarters of the Trump era, but mid-level hourly wages gained only 0.5 percent in the same period. Credit to Trump or Obama ? Economists caution against attributing economic performance, good or bad, solely to presidents. Trump has forcefully claimed ownership for the current economy but it was former President Barack Obama who presided over most of the recovery. "There's no question that there's a mixture of credit involved. President Obama took office during the worst downturn since the Great Depression," Douglas Holtz-Eakin, a Republican former director of the Congressional Budget Office, told AFP. But Trump has slashed taxes and regulations to energize businesses, Holtz-Eakin said. Following December's tax cuts and a big spending package enacted in February, the US economy does appear to be growing faster than it did in the prior two years -- for now -- and business investment picked up. The International Monetary Fund in July forecast US growth of 2.9 per cent for 2018, which would match the expansion in 2015 under Obama. But as unemployment has fallen and available workers have become scarce, job growth has actually slowed under Trump. Since January 2017, the economy had added 3.9 million jobs. But in the final 21 months of Obama's presidency, there were 4.5 million net new positions created. And, since peaking at 10 per cent in October 2009, the US unemployment rate has fallen 6.3 percentage points: 5.3 points of that was under Obama and just one under Trump. What are the risks? Predicting recessions is a notoriously difficult task. But economists say dangers to the US economy, and the odds of a downturn, are growing. The trade war with China, America's largest trading partner, already is causing "chaos" for US electronics manufacturers, according to the Institute for Supply Management, with the hit to US supply chains likely to show up in economic data in the near future. And there are no negotiations between Washington and Beijing currently scheduled. As the Fed raises lending rates, there is a growing risk of popping an asset bubble created by years of easy money from the Fed -- and thus wiping out household wealth and tipping the economy into recession. Economic contagion could also spread from emerging markets as they suffer capital flight, falling currency values and rising debt costs. Record high global debt is a key risk flagged by the IMF, as it reached an all-time high of $182 trillion -- almost 60 per cent higher than in 2007.

US economy booms as elections near, but who gets credit?

*By:&nbspRichard Holden

It’s not all that often that the semi-annual report titled “US Treasury Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” is a hotly anticipated document. But against the backdrop of the Trump administration’s views on trade, it was this week.

The report was prepared by seasoned folks at Treasury, yet it has the fingerprints of the administration and its mercantilist views all over it.

Early on the report states: “The global economy accelerated in 2017 to its fastest pace of growth since the post-crisis rebound in 2011. The broad-based strengthening of growth was led by the United States, where domestic demand growth averaged 3 percent over the last three quarters of the year, and by a synchronized expansion in Europe…Notwithstanding the pick-up in global growth, the U.S. trade deficit widened in 2017…

The Administration remains deeply concerned by the significant trade imbalances in the global economy, and is working actively across a broad range of areas to help ensure that trade expands in a way that is fair and reciprocal.”

“Fair and reciprocal”. Well that sounds nice. But US trade is fair and reciprocal. Imports from China allow the US to allocate its resources to what it does relatively more efficiently – make fewer t-shirts, produce more iMacs, iPhones and Apple watches, for example.

President Trump has long thought – mistakenly, mind you – that trade is a zero-sum game and that bilateral trade deficits are evidence of a “bad deal”. That’s flat-out wrong. But given the president’s famously short attention span, there was some hope those views wouldn’t affect policy too much.

Unfortunately, he appointed Peter Navarro as Director of the White House National Trade Council. Navarro thinks if trade deficits go down, economic output must rise – a conclusion that is false as a matter of logic. It’s distressing that Navarro doesn’t understand the principle of comparative advantage, or even how the national accounts work in that exports add to GDP, but imports leave it unchanged.

As a brief aside, Navarro is a self-described “heterodox economist”. Those folks in Australia who wear that moniker with pride would do well to reflect on how one of their intellectual fellow travellers is complicit in attacking the living standards of not only the poorest people in the US but also in China.

Speaking of China, figures released this week showed that China’s GDP grew a little faster than expected, expanding 6.8 per cent in the first quarter of 2018. This was largely due to strong consumer demand (which accounted for roughly 80 per cent of that growth), but also strong exports and a healthy construction sector. Indeed, Chinese retail sales rose 10.1 per cent for the 12 months to March, exceeding both their recent pace and market expectations.

Given time lags and implementation issues, the recent tit-for-tat tariffs between the US and China have yet to take effect – so next quarter’s numbers will be the really interesting ones to focus on. In fact, Chinese exports to the US were up 14.8 per cent on an annualised basis, suggesting that exporters may have shipped goods early in a bid to beat the tariffs. That “pipeline filling” could result in a significant drop next quarter.

In the US, retail sales figures for March showed positive signs. Commerce Department data showed retail sales up 0.6 per cent in March, a bounce back from previous disappointing monthly figures in 2018. Importantly, bellwether categories like cars and appliances were up strongly – a sign of consumer confidence.

Residential construction in the US was also strong, with housing starts up 1.9 per cent to 1.32 million at an annualised rate, compared to market expectations of 1.27 million. This was driven, however, by so-called “multifamily” construction, which is essentially apartments. As in Australia, that is a volatile category month to month. It was up strongly but had been down 10.2 per cent in February. Single-family construction fell 5.5 per cent, the largest decline in seven years. All in all, a mixed bag.

In Australia, fewer jobs were created in March than expected, with unemployment steady at 5.5 per cent, seasonally adjusted. This is still far too high, and with the participation rate picking up it could head higher, rather than lower.

The RBA released minutes of its most recent board meeting.

The most interesting part was the discussion of the financial stability of Australian households. The minutes noted: “Risks remained from the high level of household debt and the growth of riskier lending in earlier years, but regulatory measures had helped to contain the build-up of risks.”

They added that while household debt had outpaced income in recent years, net household wealth was also growing, with housing and financial assets of Australian households exceeding borrowing.

“Members noted, however, that this was not reflective of the financial positions of all individual households. Nevertheless, measures of household financial stress did not indicate a high level of financial stress at present.” (emphasis added).

It’s that italicised part that is important. Just because on average households might have their noses above water doesn’t mean significant problems don’t loom.

It’s the marginal household or borrower that matters and can drive financial problems. Think sub-prime in the US. Average borrowers in California or Massachusetts or New York were fine. But the marginal borrowers were not, and it was their borrowing behaviour (and the behaviour of those who lent to them) that triggered the financial crisis. Surely the RBA understands that, using this to inform its approach to macroprudential regulation?

*Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

(This article was originally published on <a href="http://theconversation.com">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-the-calm-before-the-storm-in-us-china-trade-95149">original article</a>.)

(Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Given time lags and implementation issues, the recent tit-for-tat tariffs between the US and China have yet to take effect – so next quarter’s numbers will be the really interesting ones to focus on

*By: Richard Holden It’s not all that often that the semi-annual report titled “US Treasury Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” is a hotly anticipated document. But against the backdrop of the Trump administration’s views on trade, it was this week. The report was prepared by seasoned folks at Treasury, yet it has the fingerprints of the administration and its mercantilist views all over it. Early on the report states: “The global economy accelerated in 2017 to its fastest pace of growth since the post-crisis rebound in 2011. The broad-based strengthening of growth was led by the United States, where domestic demand growth averaged 3 percent over the last three quarters of the year, and by a synchronized expansion in Europe…Notwithstanding the pick-up in global growth, the U.S. trade deficit widened in 2017… The Administration remains deeply concerned by the significant trade imbalances in the global economy, and is working actively across a broad range of areas to help ensure that trade expands in a way that is fair and reciprocal.” “Fair and reciprocal”. Well that sounds nice. But US trade is fair and reciprocal. Imports from China allow the US to allocate its resources to what it does relatively more efficiently – make fewer t-shirts, produce more iMacs, iPhones and Apple watches, for example. President Trump has long thought – mistakenly, mind you – that trade is a zero-sum game and that bilateral trade deficits are evidence of a “bad deal”. That’s flat-out wrong. But given the president’s famously short attention span, there was some hope those views wouldn’t affect policy too much. Unfortunately, he appointed Peter Navarro as Director of the White House National Trade Council. Navarro thinks if trade deficits go down, economic output must rise – a conclusion that is false as a matter of logic. It’s distressing that Navarro doesn’t understand the principle of comparative advantage, or even how the national accounts work in that exports add to GDP, but imports leave it unchanged. As a brief aside, Navarro is a self-described “heterodox economist”. Those folks in Australia who wear that moniker with pride would do well to reflect on how one of their intellectual fellow travellers is complicit in attacking the living standards of not only the poorest people in the US but also in China. Speaking of China, figures released this week showed that China’s GDP grew a little faster than expected, expanding 6.8 per cent in the first quarter of 2018. This was largely due to strong consumer demand (which accounted for roughly 80 per cent of that growth), but also strong exports and a healthy construction sector. Indeed, Chinese retail sales rose 10.1 per cent for the 12 months to March, exceeding both their recent pace and market expectations. Given time lags and implementation issues, the recent tit-for-tat tariffs between the US and China have yet to take effect – so next quarter’s numbers will be the really interesting ones to focus on. In fact, Chinese exports to the US were up 14.8 per cent on an annualised basis, suggesting that exporters may have shipped goods early in a bid to beat the tariffs. That “pipeline filling” could result in a significant drop next quarter. In the US, retail sales figures for March showed positive signs. Commerce Department data showed retail sales up 0.6 per cent in March, a bounce back from previous disappointing monthly figures in 2018. Importantly, bellwether categories like cars and appliances were up strongly – a sign of consumer confidence. Residential construction in the US was also strong, with housing starts up 1.9 per cent to 1.32 million at an annualised rate, compared to market expectations of 1.27 million. This was driven, however, by so-called “multifamily” construction, which is essentially apartments. As in Australia, that is a volatile category month to month. It was up strongly but had been down 10.2 per cent in February. Single-family construction fell 5.5 per cent, the largest decline in seven years. All in all, a mixed bag. In Australia, fewer jobs were created in March than expected, with unemployment steady at 5.5 per cent, seasonally adjusted. This is still far too high, and with the participation rate picking up it could head higher, rather than lower. The RBA released minutes of its most recent board meeting. The most interesting part was the discussion of the financial stability of Australian households. The minutes noted: “Risks remained from the high level of household debt and the growth of riskier lending in earlier years, but regulatory measures had helped to contain the build-up of risks.” They added that while household debt had outpaced income in recent years, net household wealth was also growing, with housing and financial assets of Australian households exceeding borrowing. “Members noted, however, that this was not reflective of the financial positions of all individual households. Nevertheless, measures of household financial stress did not indicate a high level of financial stress at present.” (emphasis added). It’s that italicised part that is important. Just because on average households might have their noses above water doesn’t mean significant problems don’t loom. It’s the marginal household or borrower that matters and can drive financial problems. Think sub-prime in the US. Average borrowers in California or Massachusetts or New York were fine. But the marginal borrowers were not, and it was their borrowing behaviour (and the behaviour of those who lent to them) that triggered the financial crisis. Surely the RBA understands that, using this to inform its approach to macroprudential regulation? *Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW (This article was originally published on The Conversation. Read the original article.) (Disclaimer: The opinions expressed above are the personal views of the author and do not reflect the views of ZMCL)

Opinion: The calm before the storm in US-China trade

The US economy may be basking in the warm glow of solid growth, but economists are nervously eyeing a trend in the bond market that could spell stormy weather ahead.&nbsp;Even though President Donald Trump is touting unemployment at its lowest level in 17 years and Wall Street soaring to new heights, economists are worried about one indicator that is often a harbinger of recession: the yield curve.

&quot;Since 1950, each recession has been preceded by a reversal of the yield curve&quot;, said Christopher Low, chief economist of FTN Financial.&nbsp;This closely scrutinized graph maps the difference in yield, or return on investment, of short- and long-term US Treasury debt, usually comparing two-year notes to 10-year bonds.&nbsp;

Normally, the shorter the investment, the lower the yield, and conversely, the longer the investment, the higher the return, to offset the greater risks of losing access to funds for an extended period.&nbsp;But for the past year, the yield curve has been flattening as the return on short-term debt has been getting close to long-term yields, possible signaling eroding confidence in the economy&#39;s performance in the coming years.&nbsp;

The spread between the yield on two- and 10-year Treasury paper fell from 135 in December 2016 to 51 basis points on December 15, the lowest since October 2007 -- just before the start of the global financial crisis.&nbsp;Worse still would be if the yield curve inverts, as short-term returns outpace the longer-dated debt -- meaning the spread is negative -- and if officials ignore the warning. The yield curve inversion &quot;could be heralding a contraction of the economy,&quot; says Gary Duncan, chief economist at Oxford Economics.

Fed policy&nbsp;

As Gregori Volokhine, of Meeschaert Financial Services, explained: &quot;An inversion of the curve indicates that investors do not have confidence in the future&quot;.&nbsp;The main factor behind the flattening of the yield curve is the US central bank&#39;s moves to raise the benchmark interest rate five times since the end of 2015, including three increases this year and three more expected in 2018.

The long-term yields fluctuate more in line with growth and inflation expectations. And while growth prospects have been revised upwards for next year -- in part due to the impact of the massive corporate tax cuts just approved by Congress -- the Federal Reserve&#39;s inflation target will not be reached until 2019, according to its latest forecasts.&nbsp;

The Fed&#39;s preferred inflation measure was only 1.6 percent year-on-year in October.&nbsp;Two voting members of the Fed&#39;s policy committee -- including Minneapolis Fed President Neel Kashkari -- dissented from the December 13 decision to raise rates, preferring to wait for inflation to rise further.

&#39;Worrying&#39;

Kashkari also mentioned his concerns about the yield curve and the signal it is sending to policymakers.&nbsp;&quot;While the yield curve has not yet inverted, the bond market is telling us that the odds of a recession are increasing,&quot; he said in a statement explaining his opposition to raising rates again.

Duncan of Oxford Economics cautioned that &quot;if the Fed tightens its policy too quickly, the markets anticipate a slowdown in the economy in the longer term&quot; as credit becomes more expensive.&nbsp;However, outgoing Fed Chair Janet Yellen downplayed those fears.

&quot;There are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed,&quot; Yellen said in her press conference last week.&nbsp;FTN&#39;s Low said Yellen could be making the same mistake as her predecessors Alan Greenspan in 1998 and Ben Bernanke in 2006, who each saw recessions after the yield curve inverted.&nbsp;

&quot;Janet Yellen is making the same speech,&quot; Low said. &quot;This is worrying&quot;. Like most analysts, Low does not anticipate an inversion before 2019, or a recession until &quot;early 2020&quot;.&nbsp;Historically the economy has seen four to six quarters between a curve inversion and the start a recession.

Of course, not every flat curve brings on an economic downturn, and some economists agree with Yellen that it may be too early to panic.&nbsp;Noted economist Mohamed El-Erian, the chief economic adviser at Allianz SE, the parent company of PIMCO, notes several reasons the yield curve could steepen, including many indicators signaling the economy still has room to expand and inflation to pick up.

If it doesn&#39;t, the Fed could reverse course quickly, he wrote in a blog post.&nbsp;In addition, &quot;the synchronized pick-up in growth in the rest of the world is supportive of the US expansion&quot;.

Economists are worried about one indicator that is often a harbinger of recession: the yield curve

The US economy may be basking in the warm glow of solid growth, but economists are nervously eyeing a trend in the bond market that could spell stormy weather ahead. Even though President Donald Trump is touting unemployment at its lowest level in 17 years and Wall Street soaring to new heights, economists are worried about one indicator that is often a harbinger of recession: the yield curve. "Since 1950, each recession has been preceded by a reversal of the yield curve", said Christopher Low, chief economist of FTN Financial. This closely scrutinized graph maps the difference in yield, or return on investment, of short- and long-term US Treasury debt, usually comparing two-year notes to 10-year bonds. Normally, the shorter the investment, the lower the yield, and conversely, the longer the investment, the higher the return, to offset the greater risks of losing access to funds for an extended period. But for the past year, the yield curve has been flattening as the return on short-term debt has been getting close to long-term yields, possible signaling eroding confidence in the economy's performance in the coming years. The spread between the yield on two- and 10-year Treasury paper fell from 135 in December 2016 to 51 basis points on December 15, the lowest since October 2007 -- just before the start of the global financial crisis. Worse still would be if the yield curve inverts, as short-term returns outpace the longer-dated debt -- meaning the spread is negative -- and if officials ignore the warning. The yield curve inversion "could be heralding a contraction of the economy," says Gary Duncan, chief economist at Oxford Economics. Fed policy As Gregori Volokhine, of Meeschaert Financial Services, explained: "An inversion of the curve indicates that investors do not have confidence in the future". The main factor behind the flattening of the yield curve is the US central bank's moves to raise the benchmark interest rate five times since the end of 2015, including three increases this year and three more expected in 2018. The long-term yields fluctuate more in line with growth and inflation expectations. And while growth prospects have been revised upwards for next year -- in part due to the impact of the massive corporate tax cuts just approved by Congress -- the Federal Reserve's inflation target will not be reached until 2019, according to its latest forecasts. The Fed's preferred inflation measure was only 1.6 percent year-on-year in October. Two voting members of the Fed's policy committee -- including Minneapolis Fed President Neel Kashkari -- dissented from the December 13 decision to raise rates, preferring to wait for inflation to rise further. 'Worrying' Kashkari also mentioned his concerns about the yield curve and the signal it is sending to policymakers. "While the yield curve has not yet inverted, the bond market is telling us that the odds of a recession are increasing," he said in a statement explaining his opposition to raising rates again. Duncan of Oxford Economics cautioned that "if the Fed tightens its policy too quickly, the markets anticipate a slowdown in the economy in the longer term" as credit becomes more expensive. However, outgoing Fed Chair Janet Yellen downplayed those fears. "There are good reasons to think that the relationship between the slope of the yield curve and the business cycle may have changed," Yellen said in her press conference last week. FTN's Low said Yellen could be making the same mistake as her predecessors Alan Greenspan in 1998 and Ben Bernanke in 2006, who each saw recessions after the yield curve inverted. "Janet Yellen is making the same speech," Low said. "This is worrying". Like most analysts, Low does not anticipate an inversion before 2019, or a recession until "early 2020". Historically the economy has seen four to six quarters between a curve inversion and the start a recession. Of course, not every flat curve brings on an economic downturn, and some economists agree with Yellen that it may be too early to panic. Noted economist Mohamed El-Erian, the chief economic adviser at Allianz SE, the parent company of PIMCO, notes several reasons the yield curve could steepen, including many indicators signaling the economy still has room to expand and inflation to pick up. If it doesn't, the Fed could reverse course quickly, he wrote in a blog post. In addition, "the synchronized pick-up in growth in the rest of the world is supportive of the US expansion".

Could the 'curve' be warning of a US recession?

US job creation surged in January while the unemployment rate drifted marginally higher as more people joined the job hunt, the Labour Department reported Friday.

With hiring up in retail, construction and the financial sector, the economy added 227,000 net new nonfarm jobs during the month, the biggest jump since September.

The jobless rate ticked up a tenth of a point to 4.8 per cent, reflecting a small increase in the labour force.

The result far surpassed a consensus forecast for 170,000 new positions, although economists have warned in recent days about a possible big upside surprise based on other recent labour indicators.

The new figures, which include the first 11 days of Donald Trump&#39;s presidency, largely confirm the health of the economy he inherited, which has seen a slow but steady recovery from the 2008 financial crisis.

Revisions to the November and December data, which subtracted 39,000 jobs from the originally reported figures, mean the economy created an average of 183,000 new jobs over the past three months.&nbsp;

Trump -- who on the campaign trail repeatedly impugned the trustworthiness of the unemployment data -- has pledged to create 25 million jobs over the next 10 years, a goal economists say is unrealistic because the economy is already near full employment and the ageing work force will probably grow very slowly.

The labour force participation rate rose 0.2 point to 62.9 per cent in January, indicating more people returned to the work force to search for a job.

Average hourly earnings were $26.00 an hour, up a very modest three cents from December. Wages are up 2.5 percent over the last 12 months.

&quot;We believe the trend in employment growth remains more than strong enough to keep the unemployment rate trending down and adding to upward pressure on wage gains,&quot; Jim O`Sullivan, chief economist at High Frequency Economics, said in a client note.

The US Federal Reserve this week decided to keep interest rates steady, but the central bank will feel more pressure to raise the benchmark federal funds rate to clamp down on inflation as the economy heats up and especially if wages continue to rise.Still, analysts say it&#39;s difficult to predict when a decision would be made.

January&#39;s results were a &quot;mixed bag&quot; for the Fed, making a rate hike next month less likely, says Ian Shepherdson, chief economist at Pantheon Macroeconomics.

&quot;The surge in payrolls will be a real problem for policymakers, if it is sustained, but the softness of [average hourly earnings] makes it harder for the hawks to make the case that the threat to core inflation via the labor market is immediate,&quot; he wrote in a note to clients.

Retailers -- including clothing, electronics and furniture stores -- added 46,000 positions for the month while construction added 36,000 new positions.

Financial activities accounted for 32,000 new positions, with gains recorded in real estate, insurance and credit intermediation.&nbsp; 
Restaurants and bars also continued their upward trend, adding 30,000 new positions.

Mining and manufacturing, which have both suffered losses in recent months, showed little or no change.

The general picture of unemployment remained largely unchanged, however. The so-called long-term unemployed -- those looking for work for 27 weeks or more -- numbered 1.9 million, around a quarter of the total jobless population of 7.6 million.

Discouraged workers, or those who believe no jobs are available for them, amounted to 532,000 people in January, little changed from a year ago.

Wall Street finished the day up significantly, buoyed higher both by the strong jobs numbers and new Trump executive actions to ease restrictions on the banking sector.

The Dow gained 0.9 percent while the S&amp;P finished 0.7 percent higher and the Nasdaq rose 0.5 per cent to hit a new record.

(AFP)

The economy added 227,000 net new nonfarm jobs during January, the biggest jump since September

US job creation surged in January while the unemployment rate drifted marginally higher as more people joined the job hunt, the Labour Department reported Friday. With hiring up in retail, construction and the financial sector, the economy added 227,000 net new nonfarm jobs during the month, the biggest jump since September. The jobless rate ticked up a tenth of a point to 4.8 per cent, reflecting a small increase in the labour force. The result far surpassed a consensus forecast for 170,000 new positions, although economists have warned in recent days about a possible big upside surprise based on other recent labour indicators. The new figures, which include the first 11 days of Donald Trump's presidency, largely confirm the health of the economy he inherited, which has seen a slow but steady recovery from the 2008 financial crisis. Revisions to the November and December data, which subtracted 39,000 jobs from the originally reported figures, mean the economy created an average of 183,000 new jobs over the past three months. Trump -- who on the campaign trail repeatedly impugned the trustworthiness of the unemployment data -- has pledged to create 25 million jobs over the next 10 years, a goal economists say is unrealistic because the economy is already near full employment and the ageing work force will probably grow very slowly. The labour force participation rate rose 0.2 point to 62.9 per cent in January, indicating more people returned to the work force to search for a job. Average hourly earnings were $26.00 an hour, up a very modest three cents from December. Wages are up 2.5 percent over the last 12 months. "We believe the trend in employment growth remains more than strong enough to keep the unemployment rate trending down and adding to upward pressure on wage gains," Jim O`Sullivan, chief economist at High Frequency Economics, said in a client note. The US Federal Reserve this week decided to keep interest rates steady, but the central bank will feel more pressure to raise the benchmark federal funds rate to clamp down on inflation as the economy heats up and especially if wages continue to rise.Still, analysts say it's difficult to predict when a decision would be made. January's results were a "mixed bag" for the Fed, making a rate hike next month less likely, says Ian Shepherdson, chief economist at Pantheon Macroeconomics. "The surge in payrolls will be a real problem for policymakers, if it is sustained, but the softness of [average hourly earnings] makes it harder for the hawks to make the case that the threat to core inflation via the labor market is immediate," he wrote in a note to clients. Retailers -- including clothing, electronics and furniture stores -- added 46,000 positions for the month while construction added 36,000 new positions. Financial activities accounted for 32,000 new positions, with gains recorded in real estate, insurance and credit intermediation. Restaurants and bars also continued their upward trend, adding 30,000 new positions. Mining and manufacturing, which have both suffered losses in recent months, showed little or no change. The general picture of unemployment remained largely unchanged, however. The so-called long-term unemployed -- those looking for work for 27 weeks or more -- numbered 1.9 million, around a quarter of the total jobless population of 7.6 million. Discouraged workers, or those who believe no jobs are available for them, amounted to 532,000 people in January, little changed from a year ago. Wall Street finished the day up significantly, buoyed higher both by the strong jobs numbers and new Trump executive actions to ease restrictions on the banking sector. The Dow gained 0.9 percent while the S&P finished 0.7 percent higher and the Nasdaq rose 0.5 per cent to hit a new record. (AFP)

US job creation rises in January, labour data shows

The US economy slowed sharply in the final three months of the year largely due to falling exports, pulling 2016 growth to its lowest since 2011, the Commerce Department reported on Friday.

The first estimate of Gross Domestic Product showed growth of 1.9 per cent in the October-December period, well below the 3.5 per cent pace of the third quarter, and short of the consensus estimate by analysts of 2.2 per cent.

For the full year, the economy expanded 1.6 per cent, a full point below the pace of 2015.

&quot;The deceleration of real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports... and a downturn in federal government spending,&quot; the report said.

Exports fell 4.3 per cent in the latest quarter, while imports rose eight per cent. Together those two factors subtracted 1.7 points from GDP in the quarter. Federal spending fell 1.2 per cent.

But the economy was buoyed by an 11 per cent surge in spending on durable goods, like large appliances, and a 10 per cent jump in residential investment.

The tepid growth for the fourth quarter would seem to confirm the expectation that the Federal Reserve will hold off on another interest rate increase, when central bankers meet next week, after they raised the benchmark rate in December for only the second time in a decade.

However, the Fed&#39;s preferred inflation measure, the Personal Consumption Expenditures index, jumped to 2.2 per cent the final quarter of the year, from 1.5 per cent in the prior quarter, which is above the Fed&#39;s 2.0 percent target and the highest since early 2012.&nbsp;

Excluding volatile food and energy prices, the so-called core PCE price index slowed to 1.3 percent from 1.7 per cent in the third quarter.

For the full year, the price index increased 1.1 per cent compared to 2015, while the core was up 1.7 per cent, the fastest since 2012.

In a separate report, the Commerce Department said new orders for durable goods fell 0.4 percent in December, which is consistent with the GDP data but likely will surprise analysts who expected a three percent increase.

However, when transportation products are excluded, new orders rose 0.5 per cent. The figure jumped 1.7 per cent when defence is removed from the data.

(AFP)

The first estimate of Gross Domestic Product showed growth of 1.9% in the final quarter

The US economy slowed sharply in the final three months of the year largely due to falling exports, pulling 2016 growth to its lowest since 2011, the Commerce Department reported on Friday. The first estimate of Gross Domestic Product showed growth of 1.9 per cent in the October-December period, well below the 3.5 per cent pace of the third quarter, and short of the consensus estimate by analysts of 2.2 per cent. For the full year, the economy expanded 1.6 per cent, a full point below the pace of 2015. "The deceleration of real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports... and a downturn in federal government spending," the report said. Exports fell 4.3 per cent in the latest quarter, while imports rose eight per cent. Together those two factors subtracted 1.7 points from GDP in the quarter. Federal spending fell 1.2 per cent. But the economy was buoyed by an 11 per cent surge in spending on durable goods, like large appliances, and a 10 per cent jump in residential investment. The tepid growth for the fourth quarter would seem to confirm the expectation that the Federal Reserve will hold off on another interest rate increase, when central bankers meet next week, after they raised the benchmark rate in December for only the second time in a decade. However, the Fed's preferred inflation measure, the Personal Consumption Expenditures index, jumped to 2.2 per cent the final quarter of the year, from 1.5 per cent in the prior quarter, which is above the Fed's 2.0 percent target and the highest since early 2012. Excluding volatile food and energy prices, the so-called core PCE price index slowed to 1.3 percent from 1.7 per cent in the third quarter. For the full year, the price index increased 1.1 per cent compared to 2015, while the core was up 1.7 per cent, the fastest since 2012. In a separate report, the Commerce Department said new orders for durable goods fell 0.4 percent in December, which is consistent with the GDP data but likely will surprise analysts who expected a three percent increase. However, when transportation products are excluded, new orders rose 0.5 per cent. The figure jumped 1.7 per cent when defence is removed from the data. (AFP)

US economy posts slowest growth since 2011

Sluggish economic growth in the second quarter forced the Federal Reserve to keep its benchmark interest rate unchanged for the sixth straight meeting on Wednesday.&nbsp; 
 
The central bank kept its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent.&nbsp; 
 
Fed Chair Janet Yellen said US growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation. 
 
&quot;We judged that the case for an increase has strengthened but decided for the time being to wait,&quot; Yellen told a news conference. &quot;The economy has a little more room to run.&quot; 
 
Yellen said the Federal Open Market Committee has to thread the needle between stifling growth with a premature increase and allowing the economy, feeding on a decade of easy money, to get away from them. 
 
But the two-meeting showed deep divisions between the policymakers, with three of the 10 arguing for a rate rise now.&nbsp; 
 
While some displayed confidence the economy would continue to grow through the second half, others said they need to see more sign of strength in the economy.&nbsp; 
 
The central bank cut its 2016 growth forecast to 1.8 percent, down from 2.0 percent in June, saying there were some persistent weak signs in the economy.&nbsp; 
 
It also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent. 
 
The Fed strongly signalled it could still tighten monetary policy by the end of this year as the labour market improved further and the inflation picked up.&nbsp; 
 
Yellen said she expected one rate increase this year if the job market continued to improve and major new risks did not arise. 
 
Analysts said the Fed certainly leaned toward a December hike but nevertheless left open the possibility of not taking any rate action before 2017. 
 
The next policy meetings of the US Federal Reserve are scheduled in early November and mid-December. 
 
(WION with inputs from agencies) 
&nbsp;

US Fed Chair Janet Yellen said the US growth appeared roughly balanced and needed more strength to survive a rate hike

Sluggish economic growth in the second quarter forced the Federal Reserve to keep its benchmark interest rate unchanged for the sixth straight meeting on Wednesday. The central bank kept its target rate for overnight lending between banks in a range of 0.25 percent to 0.50 percent. Fed Chair Janet Yellen said US growth was looking stronger and rate increases would be needed to keep the economy from overheating and fuelling high inflation. "We judged that the case for an increase has strengthened but decided for the time being to wait," Yellen told a news conference. "The economy has a little more room to run." Yellen said the Federal Open Market Committee has to thread the needle between stifling growth with a premature increase and allowing the economy, feeding on a decade of easy money, to get away from them. But the two-meeting showed deep divisions between the policymakers, with three of the 10 arguing for a rate rise now. While some displayed confidence the economy would continue to grow through the second half, others said they need to see more sign of strength in the economy. The central bank cut its 2016 growth forecast to 1.8 percent, down from 2.0 percent in June, saying there were some persistent weak signs in the economy. It also projected a less aggressive rise in interest rates next year and in 2018, and cut its longer-run interest rate forecast to 2.9 percent from 3.0 percent. The Fed strongly signalled it could still tighten monetary policy by the end of this year as the labour market improved further and the inflation picked up. Yellen said she expected one rate increase this year if the job market continued to improve and major new risks did not arise. Analysts said the Fed certainly leaned toward a December hike but nevertheless left open the possibility of not taking any rate action before 2017. The next policy meetings of the US Federal Reserve are scheduled in early November and mid-December. (WION with inputs from agencies)

Federal Reserve keeps interest rates unchanged, Chair Yellen signals one hike by year end

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