Real Time Economics: What Do Tariffs, Oil Prices, a Tight Labor Market and Rising Borrowing Costs Mean for the Economy? – Real Time Economics


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Good morning! Today we look at pushback on proposed auto tariffs, rising prices on U.S. steel, climbing borrowing costs, a shortage of summer workers, Europe’s soft patch, and who’s paying for $80 a barrel oil.

PUSHBACK ON AUTO TARIFFS

Lawmakers, the auto industry and foreign trade partners are among those lambasting the White House’s latest directive on tariffs. President Donald Trump ordered a review of imported vehicles and auto parts under a 1962 law allowing tariffs based on national security concerns, William Mauldin and Siobhan Hughes report. It’s the same justification used on steel and aluminum, though it’s garnering stronger reactions from political allies and trade partners. Republican lawmakers are growing worried that employing tariffs based on national security grounds could alienate military allies, kick off trade wars, disrupt supply chains and boost consumer prices for a big-ticket item.

STEEL YOURSELF

U.S. steel prices are breaking away from counterparts in Asia and Europe. The cause: confusion about what Washington’s import tariffs will look like. The Trump administration set a June 1 deadline for many major exporting countries to negotiate deals that would at least partially exempt them from 25% steel tariffs. The price of American steel has now risen to its highest since a China-led demand boom a decade ago—it has surged nearly 40% this year, Rhiannon Hoyle reports. That may be good for steel mills, but other manufacturers, builders and ultimately consumers will get pinched by higher prices.

Have you noticed higher prices for consumer goods or services? Write to Jeffrey Sparshott at realtimeeconomics@wsj.com, tweet to @WSJecon and visit wsj.com/economy for the latest.

WHAT TO WATCH TODAY

U.S. durable goods orders for April, out at 8:30 a.m. ET, are expected to fall 1.5% from the prior month. The headline figures rise and fall with Boeing’s order book. New orders for nondefense capital goods excluding aircraft offer a clearer view of underlying investment trends.

The University of Michigan’s consumer sentiment index for May is expected to hold steady at 98.8, reflecting a broadly upbeat assessment of the economy.

Fed Chairman Jerome Powell and Bank of England governor Mark Carney speak at a central banking conference in Stockholm, Sweden, at 9:20 a.m. ET.

The Dallas Fed is hosting a conference on technology-enabled disruption. Speakers include the Dallas Fed’s Robert Kaplan, Atlanta Fed’s Raphael Bostic and Chicago Fed’s Charles Evans at 11:45 a.m. ET, and Mr. Kaplan again at 2:30 p.m. ET.

TOP STORIES

MORE EXPENSIVE TO BORROW

This year’s rise in government-bond yields is rippling through the economy, affecting everything from mortgage rates to stock performance. Now investors are asking at what point the rise in yields will begin to damp economic growth. Already they have pushed up borrowing costs for home buyers, raising questions about whether higher rates will curb the appetites of consumers looking at big-ticket purchases, Daniel Kruger and Akane Otani.

WHERE ARE ALL THE SUMMER WORKERS?

Owners of restaurants, hotels and other seasonal businesses are scrambling for the second year in a row, as limits on visas for temporary foreign workers and a tight U.S. labor market make it difficult to staff up for the summer rush. Congress set a cap on visas for temporary nonagricultural workers—33,000 for each six-month period starting April 1 and Oct. 1. For this summer season, businesses filed requests for more than 81,000 workers on Jan. 1, the first day possible, a record. Because demand is higher than supply, businesses are forced to shorten business hours, delay expansion plans, and spend more on wages and recruitment, Ruth Simon reports.

MEANWHILE, IN EUROPE

The outlook for the eurozone economy is darkening at just the wrong time for the European Central Bank. The ECB is preparing to phase out its giant bond-buying program. But threats to the 19-nation currency union are mushrooming. They range from international trade conflicts to a recent economic slowdown to a new governing coalition in Italy that is putting investors on edge, Tom Fairless reports. At the ECB’s latest rate-setting meeting in April, the bank’s senior officials called for patience in phasing out easy money, warning in particular about mounting trade protectionism, according to minutes of the meeting.

HOLD THE SCHADENFREUDE

The recent slide in German business sentiment came to a halt in May, a sign that economic activity is stabilizing following a surprisingly weak start to the year. The May Ifo business climate index was unchanged from April and above economist expectations, Nina Adam reports. “The German economy is performing well amidst a difficult international situation,” said Clemens Fuest, president of the institute.

CHARTS OF THE DAY: MEMORIAL DAY ROADTRIP EDITION

Global oil prices touched $80 last week. Even though it’s since come down a bit, a barrel of crude is still up more than 60% in less than a year.

That’s rippling through markets for gasoline, diesel and other fuels: U.S. drivers are paying the most to fill up a tank since 2014.

The Federal Reserve tends to look through jumps in costs for energy and food. Both categories are volatile. But rising energy prices can filter through to other parts of the economy, spurring broader inflation. So far, there’s limited evidence that’s happening. Shippers are adding fuel surcharges, but prices for, say, truck transportation, aren’t surging as quickly as prices for diesel fuel.

And while jet fuel costs have skyrocketed, airfares are actually down from a year ago. That’s probably because of stiff competition across the globe. But you’d better book your tickets soon—there’s a good chance this will ultimately trickle through to consumers.

WHAT ELSE WE’RE READING

Is bitcoin in a bubble? Well, if it looks like a duck, quacks like and swims like a duck…. The San Francisco Fed uses a framework, developed by economist Hyman Minsky, that describes an unstable credit-cycle: displacement, boom, euphoria, profit taking and panic. “Minsky’s financial instability hypothesis seems better at explaining Bitcoin’s recent price developments than any proven economic theory, as by now Bitcoin seems to bear most–if not all–hallmarks of a bubble,” policy adviser Joost van der Burgt writes.

The government should subsidize employment, especially for long-term unemployed in the Rust Belt. “Targeted employment subsidies aren’t going to reverse the tectonic trends of regional change, but they can potentially change the hard crash of regional collapse into a softer landing,” Harvard’s Edward Glaeser, Lawrence Summers (yes, that Lawrence Summers) and Ben Austin write in The New York Times. The trio dismiss universal basic income and the earned-income tax credit as insufficient to tackle localized economic distress and rising male joblessness.


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Real Time Economics: What Do Tariffs, Oil Prices, a Tight Labor Market and Rising Borrowing Costs Mean for the Economy? – Real Time Economics

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