Investors Hope Q2 Earnings Will Break Market Lull
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What headlines explain the current market lull and labor trends?
I'm J.R.
Whalen in New York. Investors do not like to be bored, and the current lull in markets has them yearning for some action. We'll explain in a moment when things are expected to pick up. First, these money headlines. Economists at the Federal Reserve say the tax overhaul enacted in late 2017 will likely provide less of a boost to economic growth than many forecasters predict. and possibly none at all. The economists at the Fed's San Francisco branch say that's because the changes took effect at a time when the economy was already firing on all cylinders. As a result, there are fewer unemployed workers, spare resources, and idle factories ready to kick into action than there would have been during a downturn.
That feeling runs counter to the latest economic outlook by the Congressional Budget Office, which raised its projection for 2018 gross domestic product growth by about 1.3 percentage points to 3.3 percent, due in large part, it says, to the tax cuts and consumer spending increases. Data from the government says that Americans quit their jobs in May at the fastest rate since 2001. That's a sign that workers feel so good about the economy they're willing to leave one company for another. Job openings, meanwhile, fell to 6.4 million in May as companies filled more open positions. The percentage of people in the private sector who left their jobs by choice rose to 2.7%, and the so-called quits rate among all workers edged up to 2.4%, both highest levels since 2001.
And with regard to layoffs, the historic decline in the number of layoffs is providing a renewed level of job security to factory workers, who had seen their ranks diminish since the late 1970s. In the 12 months ended in May, the manufacturing sector accounted for 6.6% of all involuntary job departures in the U.S. That's down from 9.9% during the last economic expansion between 2001 and 2007. Overall, 1.5 million private sector workers were let go in May.
How do recent Fed and CBO reports differ on growth and tax-cut effects?
That's just above a record low level of layoffs recorded in late 2016. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. Listeners of Your Money Briefing know that while second quarter corporate earnings aren't expected to match first quarter numbers, they're still expected to be strong when the final tally comes in. Wall Street Journal markets reporter Akani Ohtani is here to discuss how that has investors hoping that strong earnings will offset fears of a trade war and higher interest rates. So Akani, the threat of a trade war and actions we've seen by the Fed so far have the markets in a bit of a lull. Investors would like to see some excitement.
Yeah, it's been a while since we have had a solid streak of things that investors could focus on that aren't trade related. And I think because of that, people are quite excited about the upcoming earnings season, which kicks off in earnest Friday with a bunch of the big banks reporting. You know, so much of the attention has been on trade and the potential negative ramifications from that. But I think what investors are hoping for is that strong results will sort of refocus the market. So people start thinking again about the fact that the domestic economy still looks pretty strong and that corporations are on pretty solid footing.
The earnings season begins Friday, July 6th. And this is like weighing several economic influences on both sides of a scale. You have the trade issue and the Fed moves on one side. On the other side, you've got rising oil prices, climbing consumer confidence, and an assortment of economic indicators on the other. And it's been sort of like a seesaw.
Yeah, and that's really in contrast to what we're seeing outside of the U.S. I mean, in the Eurozone, Canada, Japan, emerging markets, we've seen signs of an economic slowdown, and that's a departure from 2017 where really around the world we were seeing a synchronized pickup in growth. This year, the U.S. really looks like the standout, and that's helping corporate earnings outlook here continue to look quite robust, even as the earnings momentum looks like it's slowing down a little bit in the eurozone and other places.
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