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Good morning! Today we look at developing demographic distress, President Trump’s latest comments on China and Mexico, how pain-killer prescriptions knock people out of the workforce, investor indigestion in Italy, and why U.S. manufacturing productivity is mired in an epic soft patch.
American women are having children at the lowest rate on record. The general fertility rate for women age 15 to 44 was 60.2 births per 1,000 women—the lowest since the government began tracking it more than a century ago, Janet Adamy reports. The figures suggest that a number of women who put off having babies after the 2007-09 recession are forgoing them altogether.
This dearth of births could exacerbate two problems: As older Americans retire, a smaller share of young workers will pay into the social safety net that supports the elderly. That’s a budget buster. Longer term, it’s bad for the economy. Economic growth is a function of an expanding labor force and productivity gains. Neither is looking very robust right now (see the Chart of the Day for more on productivity).
WHAT TO WATCH TODAY
U.S. jobless claims, out at 8:30 a.m. ET, are expected to tick up to 215,000. That’s still a remarkably low level by historical standards.
The Minneapolis Fed’s Neel Kashkari speaks at the Minnesota Housing Finance Agency at 10:45 a.m. ET, and the Dallas Fed’s Robert Kaplan speaks in Richardson, Texas, at 1:30 p.m. ET.
Japan’s consumer price index for April is out Thursday evening (East Coast time).
House Speaker Paul Ryan last week said he needs paperwork related to a new Nafta deal by Thursday to have time to consider it in the House this year.
TRUMP: NOTHING HAS HAPPENED WITH ZTE
President Donald Trump pushed back against critics who have accused him of going soft on China and its telecommunications champion ZTE Corp: “There has been no folding as the media would love people to believe, the meetings [with Chinese officials] haven’t even started yet!” Chinese trade officials led by Vice Premier Liu He are scheduled to be in Washington this week for talks over U.S.-China trade, John D. McKinnon reports. Mr. Trump’s comments (via Twitter) suggest that prospects are dimming for a narrow bilateral deal in which the U.S. would ease penalties on ZTE in exchange for China softening proposed tariffs on U.S. agricultural products.
DEAL OR NO DEAL
President Trump portrayed Mexico as a poor ally, maintaining that the country “does nothing for us.” The comments, at a round-table discussion on immigration inside the White House, come as Mr. Trump’s lieutenants negotiate with Mexico and Canada on an overhaul of the North American Free Trade Agreement. Mexican officials in recent days have upset U.S. negotiators by demanding gains in other parts of the talks in exchange for a deal on autos, complicating efforts to seal a deal, Peter Nicholas reports. House Speaker Paul Ryan had set Thursday as a deadline for paperwork on a new Nafta deal in order to consider it in the House this year.
THE LINK BETWEEN OPIOIDS AND WORK
Pain-killer prescriptions knock people out of the workforce. For men of prime working age—between 25 and 54 years old—the labor force participation rate was 4.9 percentage points lower in areas with high opioid prescription rates than in areas with low prescription rates, a new paper by Cleveland Fed economists Dionissi Aliprantis and Mark Schweitzer said. Weak employment conditions themselves don’t lead to more opioid abuse.
AGITA IN ITALY
Political uncertainty shook Italian assets Wednesday, hitting the country’s stocks and bonds, following media reports of a draft government program that proposed new procedures to allow countries to quit the euro. The draft also said Italy would ask the European Central Bank to write off €250 billion ($296 billion) of government debt. But Italy’s new government later said more recent discussions didn’t put Italy’s membership in the common currency into question, and European stocks inched higher in early trading Thursday, boosted by a recovery in Italian assets and an upbeat session on Wall Street, Riva Gold reports.
HOW TO GET RICH QUICK
Prince Mohammed bin Salman was a teenager when he realized his father, Prince Salman bin Abdulaziz, was, by Saudi royal standards, a pauper. Nearly two decades later, Salman is king, and Mohammed bin Salman, known as MBS, is the crown prince. Prince Mohammed is also fantastically wealthy. Justin Scheck and Bradley Hope take a deep dive into how the prince amassed his wealth by intermingling commercial ventures and Saudi government connections to a degree far from Western norms.
CHART OF THE DAY: PRODUCTIVITY
Industrial production numbers for April showed solid gains for manufacturing: Factory output rose 0.5% over the month and 1.8% over the past year. Hiring in the sector has been even more robust—employment is up by 245,000 since April 2017, the biggest 12-month gain in two decades. Great, right? Not entirely. That’s a recipe for horrific productivity gains.
“Manufacturing productivity growth has hit an epic soft patch over the past few years. Because of this, factory payrolls have been increasing robustly for the ‘wrong reasons,’ ” J.P. Morgan Michael Feroli said in a research note. The upshot: With wages rising and productivity stalled, U.S. manufacturing is getting less competitive internationally, a potential stumbling block for exporters and the broader economy.
TWEET OF THE DAY
WHAT ELSE WE’RE READING
U.S. teachers aren’t just striking. They’re also quitting—in droves. Census Bureau data tracking job-to-job flows shows that the departure rate for educators increased steadily for the past three years and shows no signs of slowing down. “Over the past three years, the grand total of job-to-job transfers—not including the ones that stay in educational services—is greater than the number that stay in educational services,” Census statistician Adam Grundy writes.
That’s why they play the games. Swiss bank UBS is tipping its northern neighbor, Germany, as the favorite to win the World Cup. Using something called the “Elo rating” that looks at past success, opponent strength and how easily teams qualified, UBS analysts see Germany with a 24% chance of winning the Cup with Brazil at 20% and Spain at 16%. “Our simulations indicate that England, France, Belgium and Argentina still have a realistic chance of lifting the trophy,” they wrote. Egypt, Tunisia, Costa Rica, Saudi Arabia and Panama each have a 0% chance of winning it all.
UP NEXT: FRIDAY
Canada’s consumer price index for April is out at 8:30 a.m. ET.
The Cleveland Fed’s Loretta Mester speaks on macroprudential and monetary policy at 3 a.m. ET, Fed governor Lael Brainard speaks on the Community Reinvestment Act at 9:15 a.m. ET, and the Dallas Fed’s Robert Kaplan speaks at a University of Texas symposium at 9:15 a.m. ET.