February 22, 2019

German Growth Stagnates as Trump Trade War Starts to Bite

Mr. Trump’s trade war has been weighing on European growth since early last year, but the effect was mostly psychological until recently. The uncertainty created by the administration’s tariffs made manufacturers reluctant to expand factories or add workers.

The tariffs’ impact is becoming more tangible, cutting into the earnings of companies like Salzgitter, a steel maker in the German city of the same name. Salzgitter warned this month that pretax profit in 2019 would be half or less than the 347 million euros, or $391 million, that the company earned in 2018.

American tariffs on steel imports are partly to blame, although mostly indirectly, said Bernhard Kleinermann, a Salzgitter spokesman. The levies caused producers in countries like Russia and Turkey to flood Europe with steel they could no longer sell to customers in the United States, driving down prices.

Trade was not the only dead weight on Germany’s growth. Britain’s looming departure from the European Union, and the prospect that it might happen without an agreement covering future economic relations, was another significant source of anxiety.

German carmakers struggled to comply with tougher emissions standards, which delayed delivery of new vehicles. Even an especially dry summer played a role. The level of the Rhine River fell so low that barge traffic became impossible, holding up shipments of German chemicals that normally travel by water.

Those were temporary problems, though, making some economists optimistic that growth could improve in the coming months. The horizon will seem much brighter if Britain overcomes its political deadlock and works out a deal with Brussels, and if the United States and China can resolve their differences over trade.

Economists also expect the Chinese government to stimulate the country’s economy, which would help revive demand for German products like cars and machine tools.

Article source: https://www.nytimes.com/2019/02/14/business/germany-economy.html?partner=rss&emc=rss

Virginia’s Economy Weathers the Storm in Its Statehouse

Mr. Johnson wouldn’t rule out a boycott in the future if Mr. Northam stayed in office. If such a boycott developed, or if businesses in the state began to struggle financially, it could increase pressure on Mr. Northam and Mr. Fairfax to resign, and on legislators to remove them. A 2017 study found that local politicians were more likely to support removing Confederate flags from public spaces when the issue was framed as an economic concern.

Analysts said there was little reason to expect the political disarray to derail a strong state economy. Virginia came through the recession better than most states, in part because it benefited more than other places from federal stimulus spending during the downturn, and now boasts one of the lowest unemployment rates in the nation, at 2.8 percent in December. In some Washington suburbs in the northern part of the state, the unemployment rate is below 2 percent.

The state has a triple-A bond rating, a history of fiscal responsibility and a longstanding reputation for business friendliness.

“They’ve done a very good job of managing their fiscal affairs, and that’s been true across both Democratic and Republican governments for a while now,” said Eric Kim, who analyzes the state’s finances for Fitch, the bond ratings agency.

Mr. Kim noted that past controversies involving governors had not affected state economies or bond ratings. Missouri, for example, didn’t suffer economically when Eric Greitens faced a series of sex and campaign-finance scandals that led to his resignation. Even the uproar over the North Carolina “bathroom bill,” though it cost business, had only a modest economic impact on the state.

“State governments, even if there’s a controversy or turnover at the highest level, the machinery of state government continues to function,” Mr. Kim said. “Tax revenue continues to come in, and states continue to operate.”

Sure enough, Mr. Northam last week signed a bill promising tax incentives to Amazon for its planned campus in the state. He did so in private, without the public ceremony and photo opportunity that often accompany such actions. But it was nonetheless a sign that the leadership crisis hasn’t derailed the basic operations of state government.

Article source: https://www.nytimes.com/2019/02/12/business/economy/virginia-economy-governor-scandal.html?partner=rss&emc=rss

The Government Shutdown Made the I.R.S. Even More Frustrating

“The new schedules will force some taxpayers to cross-reference and transfer data such as credits, deductions, and income, increasing the potential for errors to occur since the tax information is dispersed over many pages and needs to be tracked down and reported on different schedules and forms,” the report says.

The problems that became apparent during the 35-day shutdown, which ended Jan. 25, underscored some of the agency’s deeper flaws, including a reliance on 1960s-era technology, the audit found. The systems that contain the official record of taxpayer accounts are the oldest in the federal government.

“For the last 25 years the I.R.S. has tried — and been unable — to replace them,” the audit says, citing budgetary constraints.

The outdated systems deprive the I.R.S. of a comprehensive view of taxpayers’ accounts, hampering the agency’s ability to properly identify who should be targeted for outreach, collections and audits.

Inadequate financing is a primary cause of the agency’s failings, the audit found. Congress has long beat up on the I.R.S., routinely condemning its performance while cutting its budget. From fiscal 2017 to fiscal 2018, for example, money for improvements was reduced 62 percent, to $110 million.

Taxpayers who called the I.R.S. last fall for advice about how they would affected by the new tax law were frequently told that there was “no tax law personnel at this time due to budgetary cuts,” and disconnected, the audit found. Part of the reason was a decision by the agency to answer tax law questions only during the three and a half months from January until tax filing day.

The problem has been compounded by the I.R.S. chief counsel’s office issuing fewer guidelines, despite the widespread ambiguity and confusion created by the tax code overhaul.

A lack of information has also meant that the vast majority of taxpayers eligible to use free software to file their returns electronically do not take advantage of the program. Of the 106 million taxpayers who could qualify for the free program, fewer than 2.5 million use it.

Article source: https://www.nytimes.com/2019/02/12/your-money/irs-government-shutdown.html?partner=rss&emc=rss

The Biggest Economic Divides Aren’t Regional. They’re Local. (Just Ask Parents.)

Similarly, people in smaller communities are more likely to volunteer, according to data pooled across several years from the volunteer supplement to the Current Population Survey. There’s also less racial segregation: Minorities are more likely to have white neighbors.

These factors may explain why Gallup research finds that people outside of large metropolitan areas tend to rate community quality higher. The Gallup-Sharecare Community Well-Being Index combines seven survey items, asking respondents their level of agreement with statements like “The city or area I live is a perfect place for me” and “I always feel safe and secure” and “The house or apartment that I live in is ideal for me and my family.”

The responses to these items are significantly more favorable when people live in neighborhoods with higher upward mobility, using data from 324,927 respondents who were surveyed by Gallup from 2015 to 2016 and combining it with the Opportunity Insights database. People living in less populated counties or metro areas also score higher on the index. This is consistent with new survey data from the American Enterprise Institute, showing that people living in large cities are the least satisfied with their communities.

On the other hand, in larger metropolitan areas, Gallup data shows that people are more likely to agree with the statement “I get to use my strengths to do what I do best every day.” This suggests higher engagement with work.

Superstar cities are generally excellent places to achieve a satisfying and high-paying career applying specialized skills.

But just as workers can be more productive at their jobs in big cities, parents can be more productive at family life in smaller places. For the parents, it’s through cheaper access to high-quality neighborhoods and social capital, the networks of trust and cooperation that often make a place work. These attributes are understandably appealing, and they help explain why everyone doesn’t simply move to the nearest major metropolitan area in search of better career prospects.

It may be hard to dislodge the commonly held view that the great American economic divergence is between big and successful metropolitan areas and the left-behind towns and rural counties that heavily supported President Trump. Less populated areas surely have their problems. Mortality is higher and education lower; some have seen large job losses.

Article source: https://www.nytimes.com/2019/02/12/upshot/the-biggest-economic-divides-arent-regional-theyre-local-just-ask-parents.html?partner=rss&emc=rss

Democrats Aim to Limit Corporate Windfall From Trump Tax Cut

“The slavish devotion to shareholders has gotten out of control,” he said.

The more aggressive efforts to regulate corporate behavior are among many leftward moves for Democrats on economic issues. They include an embrace of new taxes on the wealthy and a growing consensus that all Americans should at least have the option — if not be forced — to obtain affordable government-run health insurance.

With Mr. Trump’s $1.5 trillion tax cut, which took effect last year, already changing corporate behavior, Democrats are looking for ways to prod businesses to share more of the winnings with workers.

The tax cuts delivered windfalls, sometimes in the billions of dollars, to corporations by lowering their income tax rate to 21 percent from a previous high of 35 percent. Administration officials promised that the reduction would fuel investment, economic growth and wage gains, and it did, at least modestly, in the first year.

But one of the most noticeable effects of the law was a surge in buybacks, which neared $800 billion for the 2018 fiscal year for companies in the SP 500, according to analysts at Goldman Sachs. For 2019, those companies will buy back nearly $900 billion in shares, Goldman projects, which would be nearly a third of all corporate cash spending. That would be up from a quarter in the 2017 fiscal year, renewing progressives’ desire to increase corporate regulation.

“That you can see the Trump tax cuts go straight into buybacks is both startling and offensive, given the levels of inequality that exist and the investments our country needs to be making,” said Mike Konczal, a senior fellow at the liberal Roosevelt Institute who has pushed Democrats to take aim at buybacks and pursue other ways to force companies to invest more in workers.

Article source: https://www.nytimes.com/2019/02/07/us/politics/stock-buybacks-democrats.html?partner=rss&emc=rss

Trump Loves the New Nafta. Congress Doesn’t.

And many Republicans, including Mr. Toomey and Ron Johnson of Wisconsin, the chairman of the Senate Homeland Security and Governmental Affairs Committee, say they want the White House to remove steel and aluminum tariffs on Canada and Mexico because Mr. Trump had reached a deal with the two countries.

Mr. Trump has so far refused to budge on the metal tariffs and has instead threatened to withdraw from Nafta to try to force Congress to vote on the new trade deal. A formal notice of withdrawal would give Congress six months to pass the pact or potentially return to a pre-Nafta trading system with higher tariffs and more restrictive trade barriers.

Republicans are warning that such a move most likely falls outside Mr. Trump’s authority and would only reduce the chances of Congress passing the U.S.M.C.A.

“I imagine you’d have a huge sell-off in equities and have very, very disrupted financial markets,” Mr. Toomey said. “I sure hope the president does not go down that road.”

Republican strategists say that unless Mr. Trump agrees to compromise, he will most likely face defeat.

“The president has two options on this trade deal: the honey or the hammer,” said Antonia Ferrier, a Republican strategist with Definers Public Affairs and a former aide to the Senate majority leader, Mitch McConnell of Kentucky. Mr. Trump, she said, could bargain with Ms. Pelosi or withdraw from Nafta. “Neither are great options,” she said, “which is why there’s so much skepticism that U.S.M.C.A. will even happen.”

Democrats — including populists who tend to side more with Mr. Trump than Mr. Toomey on trade issues — say they are open to working with the administration to improve and pass the agreement. Party leaders have had productive discussions with Robert Lighthizer, the United States trade representative, to reinforce the need for negotiators to secure additional labor and environmental protections before any floor vote.

Article source: https://www.nytimes.com/2019/02/06/business/nafta-trump-deal.html?partner=rss&emc=rss

Economic View: An A- for the U.S. Economy, but Failing Grades for Trump’s Policies

Mr. Trump might argue that the point of the tax cut wasn’t to provide a short-term stimulus, but rather to promote long-term economic growth. However, economists say that it will fail to do that, too. In a survey before the bill was passed, all but one expert said the tax cut wouldn’t lead gross domestic product “to be substantially higher a decade from now.” Darrell Duffie, the lone dissenter, said it would boost growth, but he added that “whether the overall tax plan is distributionally fair is another matter.”

The problem, according to Daron Acemoglu, a prominent macroeconomist, is that while “simplification of the tax code could be beneficial,” that effect would most likely be “more than offset by its highly regressive nature.” Recent data support this pessimism, as the much-promised investment boom the tax cut was supposed to deliver appears not to have materialized.

It is worth noting that the one part of Mr. Trump’s platform that received a strong endorsement from economists — his promise of infrastructure spending — has languished, despite the possibility of bipartisan support.

For a president, monetary policy should be simple: Appoint good people, and let the Federal Reserve do its job. Mr. Trump has got half of this right. Jerome Powell, his pick for Fed chairman, has so far proven to be adept. In a recent survey, 43 percent of economists gave Mr. Powell’s leadership an A, and 51 percent gave him a B (with the remaining 6 percent giving him a C). Mr. Trump’s other Fed appointments have been mainstream, yielding a cast of policymakers that Jeb Bush might have appointed had he been elected president.

But Mr. Trump has dragged down his grade in this category by meddling in ways that have needlessly complicated the Fed’s job. Most industrialized countries, including the United States, have generally insulated monetary policy from political pressure, believing that such independence helps policymakers deliver low and stable inflation. Yet Mr. Trump has repeatedly criticized Mr. Powell for not setting interest rates lower, and has reportedly raised the possibility of firing him. The president is playing a self-defeating game, because he is making it harder for Mr. Powell to deliver low rates without appearing to have been bullied by Mr. Trump.

Mr. Trump isn’t just pushing against one or two threads of economic consensus. Instead, his program is an almost complete repudiation of the orthodoxies endorsed by Democratic and Republican economists.

Put the pieces together, and all of this presents a puzzle: If economic policy is so bad, why is the economy doing so well?

Article source: https://www.nytimes.com/2019/02/04/business/us-economy-trump-taxes-trade.html?partner=rss&emc=rss

Behind Tech’s Shine, Some Warnings Signs Appear

Back then, among the best customers for the established chip firms were start-ups, which had more dreams than revenue. As the start-ups faltered, the chip firms were imperiled. The storm lasted for years.

“These are all real companies now, with real customers,” Mr. Munster said. “People are willing to look past a few bumpy months.”

Even if the problems do not linger, they are a reminder that demand is not eternal. That seems to be what happened with smartphones, which use multiple varieties of chips to run software, process data and connect to cellular networks.

Consider Apple, which gave a muted forecast in October for the holiday season and followed up early last month with its first full-fledged revenue warning in 16 years. The iPhone maker faces stiff competition and slumping demand in China. Total smartphone shipments fell 15 percent in that country in the fourth quarter, according to research firm Canalys.

Michael Wolf, who surveys consumers annually about their technology and media usage for his management consulting firm Activate, said people seem to be shifting to lower-priced phone models and cheaper service plans. But he said demand seems strong for digital subscription services like Netflix, video games, online advertising and business-to-business sales for companies like Microsoft.

“From all of our research, I don’t see some general consumer malaise,” Mr. Wolf said.

Yet several other businesses appear to be softening as well, including the market for server systems used by cloud service operators, including Amazon, Microsoft and Google. Sales of high-priced chips for such hardware have driven profits for companies like Intel and Nvidia, but they now say that equipment buyers for data centers have turned cautious.

“Cloud service providers shifted from building capacity to absorbing capacity,” Robert Swan, who was then Intel’s chief financial officer and acting chief executive, said on a conference call after Intel released its fourth-quarter results. (On Thursday, Mr. Swan became Intel’s chief executive.)

Article source: https://www.nytimes.com/2019/02/03/technology/tech-warning-signs.html?partner=rss&emc=rss

With Interest: The Week in Business: Let the Apple vs. Facebook Battle Begin, and China Goes Soybean Shopping

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Which kind of Super Bowl watcher are you? One who A) cares about the actual game, B) is in it for the snacks, or C) wants to see how the $5.3 million ads stack up? That’s the top asking price for a 30-second commercial during CBS’s broadcast, although some spots are going for the relative steal of $5.1 million. (Oh, and if you’re wondering, I’m a solid C, plus B if spicy wings are available.) This is the first year in a decade that the cost of a Super Bowl ad hasn’t increased — NBC charged $5.25 million in 2018 — mostly owing to waning viewer numbers. You can drop that factoid when the cheese-dip conversation hits a lull, or any of the other business and tech tidbits you’re about to devour in this email. You can have a nachos-and-beer hangover on Monday and still be on top of the news.


Jan. 27-FEB. 2

Which would be more fearsome in a dark alley: Apple or Facebook? We may soon find out as the companies face off over privacy standards. Both announced their fourth-quarter earnings last week, and as expected, Apple’s numbers were a flop (to blame: China’s economic lethargy and a dwindling consumer demand for iPhones). Facebook, on the other hand — or thumb? — reported record profits. It would seem that Facebook won this round — until Apple rained on its parade by shutting down an app that Facebook was using to snoop around in users’ online activity. Apple hasn’t been shy about policing privacy issues before, but this move is downright aggressive, and a convenient distraction from its bad week.

One fear you can put to rest, if you have it: higher interest rates on your loans. The chairman of the Federal Reserve, Jerome Powell, said last Wednesday that “the case for raising rates has weakened somewhat,” signaling that rates may not go up this year after all. This was an about-face from the Fed’s previous indications that it was planning to raise rates twice more in 2019. The markets were cheered by Mr. Powell’s remarks, and American stocks surged to their best January levels in 30 years. But some investors were puzzled by the Fed’s sudden change of heart, and others worried that it revealed the risk of a recession on the horizon.

President Nicolás Maduro of Venezuela issued a threat to the United States last Wednesday, saying if the Trump administration doesn’t quit trying to oust him and install the opposition leader, Juan Guaidó, its officials would get “a Vietnam worse than they can imagine.” He’s widely viewed as an illegitimate dictator who drove his once-prosperous country into an economic catastrophe, but he’s got some heft on his side. Russia, which has provided financial and military backing to Venezuela for years, is also none too pleased about the United States’ oil sanctions against Mr. Maduro’s government. Not by coincidence, the Russian state owns part of Venezuela’s energy sector — a cash cow that it doesn’t want to lose.

Article source: https://www.nytimes.com/2019/02/03/business/the-week-in-business-let-the-apple-vs-facebook-battle-begin-and-china-goes-soybean-shopping.html?partner=rss&emc=rss

Foxconn Affirms Wisconsin Factory Plan, Citing Trump Chat

The company did not say Friday whether the expected mix of its work force would change after the conversation with the president.

Taking questions from reporters at the State Capitol on Friday, Gov. Tony Evers said he had spoken with Mr. Woo before Friday’s announcement and said it was a reiteration of previous commitments, not a shift.

“Their message hasn’t changed much recently,” said Mr. Evers, a Democrat who took office last month. “But the fact of the matter is, it is different from what the original plan was.”

Foxconn last year committed to building a Generation 6 facility. That plan was itself a step back from its original promise to build a Generation 10.5 plant, producing larger screens.

Asked if he still thought Foxconn’s investment would produce 13,000 jobs, Mr. Evers said, “It’s likely not going to be tomorrow, I’ll tell you that.” The governor said the state would need to “continually monitor the progress and thinking that goes on” and noted that the state incentives were pegged to specific goals that Foxconn would need to achieve.

Republicans who control Wisconsin’s Legislature welcomed the president’s intervention.

“Our state has an ally in the White House,” said a statement from the Assembly’s speaker, Robin Vos, and the Senate’s majority leader, Scott Fitzgerald. “Southeast Wisconsin and the entire state will see an influx of manufacturing jobs and billions in investments.”

But Mr. Woo’s comments to Reuters about the infeasibility of making liquid-crystal display panels have some lawmakers questioning whether the thousands of promised jobs will ever materialize.

“They’re giving us the prospect of making cash payments to a company for the next 15 years for a factory that the company has admitted can’t be competitive in the marketplace,” Assemblyman Gordon Hintz, the Democratic minority leader, said in an interview. “That doesn’t sound like a good taxpayer investment.”

Article source: https://www.nytimes.com/2019/02/01/business/economy/foxconn-wisconsin-plant.html?partner=rss&emc=rss