China's Churning Factories May Bring Lower Prices; Inflation Weighs on U.S. Voters By James Christie

Good day. Inflation may be poised to ease further as China doubles down on exports to revive its growth, some economists say, potentially leading to a world swimming in manufactured goods and short of the spending power to buy them-a classic recipe for falling prices. A potential early sign of that disinflationary effect: The price of U.S. imports from China fell 2.9% in January from a year earlier, while the price of imports from the European Union, Japan and Mexico all rose. Meanwhile, a poll by The Wall Street Journal finds that voters in the U.S. are more upbeat about the economy, but more than two-thirds of them say inflation is headed in the wrong direction, despite data showing that it has moderated. Additionally, nearly three-quarters of voters say that price increases are outstripping gains in household income.

Now on to today's news and analysis.

Top News The World Is in for Another China Shock

In the late 1990s and early 2000s, the U.S. and the global economy experienced a "China shock," a boom in imports of cheap Chinese-made goods that helped keep inflation low but at the cost of local manufacturing jobs.

A sequel might be in the making as Beijing doubles down on exports to revive the country's growth. Its factories are churning out more cars, machinery and consumer electronics than its domestic economy can absorb. Propped up by cheap, state-directed loans, Chinese companies are glutting foreign markets with products they can't sell at home.

China Cancels Premier's Post-NPC Press Conference Fed's Lorie Logan Rebuffs Calls for Maintaining Money-Market Buffer

A top Federal Reserve official said it would be appropriate to drain a cash surplus in a lending program created to soak up excess money sloshing through the financial system. Dallas Fed President Lorie Logan, who from 2019 to 2022 was the top Fed official in charge of overseeing the central bank's asset portfolio, said at a conference Friday that there shouldn't be a significant amount of cash in the reverse repo program after periods where the Fed has expanded its asset portfolio to address market turmoil. The amount of money parked in the reverse repo facility has declined steadily and recently fell to around $500 billion. Read more .

U.S. Economy Voters More Upbeat on Economy, but Biden Gets Little Benefit

Voters are shedding some of their pessimism about the economy, a new Wall Street Journal poll finds, but the more upbeat mood is producing only a marginal improvement in views of President Biden.

How to Invest in a Bull Market Stock Funds Rise 5.2% Thanks to 'Magnificent Seven' A Frothy Market Misses Vital Bubble Ingredients Traders Are Betting More Aggressively Ahead of Economic Data

Even With Incentives, Asian Companies Find It's Hard to Build in U.S.

TSMC has delayed opening two chip plants in Arizona, LG Energy scrapped plans for a battery plant in Indiana, and Samsung Electronics is reportedly racking up billions in added costs at a semiconductor plant it is building in Texas.

Imports Under Closely Watched U.S. Trade 'Loophole' Surge

More packages than ever are entering the U.S. under a trade provision-frequently used by e-commerce giants Temu and Shein-that allows duty-free entry with little scrutiny , even as lawmakers call for action.

Key Developments Around the World Rich Countries Are Becoming Addicted to Cheap Labor

To some economists, dependence on imported workers is approaching unhealthy levels in some places, stifling productivity growth and helping businesses delay the search for more sustainable solutions to labor shortages.

Global CO2 Emissions Hit Record High in 2023, IEA Says

Energy-related CO2 emissions rose by 410 million metric tons, or 1.1% year-on-year, reaching 37.4 billion tons in 2023 , with the use of fossil fuels to replace hydropower accounting for over 40% of the increase.

Red Sea Conflict Threatens Key Internet Cables

Most internet traffic between Europe and East Asia runs through undersea cables funneling into the strait at the southern end of the Red Sea , a chokepoint that has long posed risks for telecom infrastructure because of its busy ship traffic

Iran Tried to Persuade Sudan to Allow Naval Base on Its Red Sea Coast British Ship Rubymar Hit by Houthi Missile Sinks in Red Sea Financial Regulation Roundup Chinese Gangs Use Cryptocurrencies to Launder Billions

Chinese crime syndicates are using crypto to launder the profits of drug dealing and illegal gambling, and have made huge amounts from investment scams promising easy returns in the cryptocurrency markets.

Signs of Trouble at Regional Banks Reignite Sector Fears

Bank stocks dropped Friday after more signs of trouble at New York Community Bancorp and a smaller peer revived fears about the stability of the sector a year after a string of high-profile failures.

Tax Deal Stalls, Imperiling Breaks for Businesses and Families

A bipartisan tax bill soared out of the House earlier this year, backed by a surprisingly broad coalition that included antitax activists, liberal groups and businesses. But its path ahead is murky at best .

Forward Guidance Tuesday (all times ET)

10 a.m.: ISM Report on Services PMI for February; U.S. factory orders

12 p.m.: Fed's Barr speaks at 2024 National Interagency Community Reinvestment Conference

3:30 p.m.: Fed's Barr in roundtable at 2024 National Interagency Community Reinvestment Conference

Wednesday

8:15 a.m: ADP National Employment Report for U.S. for February

9:45 a.m.: Bank of Canada interest rate decision

10 a.m.: U.S. wholesale inventories for January; U.S. Job Openings and Labor Turnover Survey (JOLTS) for January; Fed's Powell presents Semiannual Monetary Policy Report to Congress to House Financial Services Committee

12 p.m.: San Francisco Fed's Daly speaks at 2024 National Interagency Community Reinvestment Conference

2 p.m.: Federal Reserve Beige Book

4:15 p.m.: Minneapolis Fed's Kashkari in Q&A session at 2024 WSJ CFO Network Summit

Research Eurozone Core Inflation to Stick Around 3% in Long Term

The declining core-inflation rate in the eurozone doesn't mask the fact that underlying upward pressure on prices has increased again, according to Commerzbank senior economist Christoph Weil. The fall to 3.1% in February from 3.3% in January, was weaker than expected, but given strong wage increases, the development isn't surprising, Weil writes in a note. Higher wage costs are having an increasing impact, especially in the often labor-intensive services sector, and as energy prices stabilize, the price-dampening effect from it will subside, Weil writes. Core inflation will still fall until the middle of 2024, but in the longer term it is likely to stabilize at 3%, well above the European Central Bank's target of 2%, he adds.

-Ed Frankl

Commentary The Fed's Latest Problem: A Strong Economy

The Federal Reserve needs to gain a better understanding of the supply side of the economy and how current innovations are affecting it, rather than focusing primarily on how monetary policy affects demand management, Mickey D. Levy writes, adding that the Fed needs to push back on calls to lower rates .

Mr. Levy is a visiting scholar at the Hoover Institution and a member of the Shadow Open Market Committee.

Basis Points U.S. consumer sentiment dipped in February below preliminary estimates and expectations, though it held much of the gains in confidence over recent months. The final reading for the month of the University of Michigan's consumer sentiment index came in at 76.9, compared with 79.0 in January. Economists polled by The Wall Street Journal expected the index to remain at its preliminary, mid-month reading of 79.6. (Dow Jones Newswires) Activity among U.S. manufacturers unexpectedly contracted at a faster rate in February as production slid. The Institute for Supply Management said Friday its index of manufacturing activity fell to 47.8 from a downwardly revised 49.1 in January, marking the 16th straight month of contraction in activity. (DJN) Services activity in the central U.S. picked up in February, but expectations for future activity slipped, according to Federal Reserve Bank of Kansas City data. The bank's Tenth District Services Survey's composite index, came in at 12, up from readings of minus 2 in January and minus 7 in December. Readings above zero indicate expansion, while those below zero indicate contraction. (DJN) Construction spending in the U.S. fell in January as companies and the government scaled back on projects amid high interest rates. Spending on construction projects fell 0.2% in January to $2.1 trillion, the Commerce Department reported Friday. Spending was down for the first time since December 2022. (MarketWatch) Feedback Loop

This newsletter is compiled by James Christie in San Francisco.

Send us your tips, suggestions and feedback. Write to:

James Christie , Perry Cleveland-Peck [mailto:perry.cleveland-peck@wsj.com], Nihad Ahmed , Michael Maloney

This article is a text version of a Wall Street Journal newsletter published earlier today.


(END) Dow Jones Newswires

03-04-24 0717ET