Good morning.
It’s worth taking a moment this Monday to savor the sweet state of the U.S. economy. Economic output in the second quarter is cooking at roughly a 4% rate, and jobs are abundant. Friday’s jobs report showed employers added a hefty 213,000 to payrolls last month. Unemployment is near historic lows, for workers of all ages and backgrounds.
Yet the signs of overheating that one might expect given such conditions are nonexistent. Unemployment actually rose during June—to 4% from 3.8%—a good thing, because it reflected a flood of workers returning to the labor market. Average hourly earnings for private workers rose 2.7% from a year earlier—decent, but not enough to stoke fears of inflation. Interest rates on 10-year notes—after jumping above 3% earlier in the year—have settled back close to 2.8%, suggesting credit continues to flow freely. Even the President’s favorite economic indicator—the trade deficit—is shrinking, defying expectations (although it may have been helped in June by a surge of soybean exports, as the Chinese soaked up global supplies before new tariffs took hold).
Economists like to say that expansions don’t die of old age—a notion that belies the fact that all previous expansions, save one, have indeed died before reaching the age of this one. Nevertheless, the ability of this expansion to seemingly rejuvenate itself is noteworthy. If the U.S. can manage another two or even three years without recession, all sorts of good things will follow.
President Trump deserves some significant credit for this state of affairs. His election clearly stirred animal spirits, his rollback of business regulation has definitely helped, and the tax cut that he made possible is feeding short-term growth. It’s also worth noting the President has engineered the largest storm cloud threatening this sunny horizon—a trade war that, while small for the moment, has cast an unfortunate pall over business investment plans.
For the economy to get full benefit from the current period of prolonged growth, businesses need to take the opportunity to invest in the future—and resist the temptation to push stock buybacks beyond already record levels. There is a new industrial revolution in the works. The future will favor those who act boldly now.
More below.
| Alan Murray | |
| @alansmurray | |
| alan.murray@fortune.com |
Top News
Xiaomi Flop
Xiaomi's stock market debut in Hong Kong was less than successful—having listed at the bottom of its range, the Chinese smartphone manufacturer saw its share price immediately fall by almost 6%. It only raised $4.7 billion at a $54 billion valuation. Xiaomi CEO Lei Jun says the outfit may have suffered from bad timing, what with the whole Sino-American trade war and all that. Also, it may just not be as big a deal as it wanted to project. CNN
Asian Stocks
Xiaomi aside, Asian shares generally closed up today—the Hang Seng was up 1.5%, Shanghai composite up 2.5%, Nikkei up 1.2% and Kospi up 0.6%. Markets took a hit last week in the run-up to the start of the trade war, but Monday's rise seems to have been sparked by Friday's good stock-market day over in the U.S., which was prompted by jobs data. CNBC
Brexit Resignation
The British government is in even more of a crisis than usual, after David Davis—the minister in charge of negotiating and delivering the U.K.'s divorce from the European Union—resigned in protest at Prime Minister Theresa May's latest Brexit strategy (it would have delivered a very "soft Brexit" that still involves a free-trade agreement between the U.K. and the EU). May, who now faces outright rebellion from the hardline Brexiteer faction of her Conservative Party, has appointed Dominic Raab as Davis's successor. Guardian
Formula Lobbying
The U.S. reportedly tried to sink an international resolution supporting the feeding of babies with breastmilk, thanks to lobbying from the formula industry. According to the New York Times, the U.S. delegation at the World Health Assembly threatened countries such as Ecuador into dropping their support for the resolution, only to be thwarted by… Russia! "We’re not trying to be a hero here, but we feel that it is wrong when a big country tries to push around some very small countries, especially on an issue that is really important for the rest of the world," said a Russian delegate. NYT
Around the Water Cooler
CFCs Culprit
Remember a couple months ago when scientists said someone was mysteriously making CFCs again, breaking the global ban and threatening the timely recovery of the ozone layer? Turns out that Chinese manufacturers of the plastic foam used in building insulation are at least partly responsible. Environmental campaigners found the use of CFC-11 in that sector is absolutely rife, even though it's supposed to have ended in 2010. Guardian
Currency Bets
JPMorgan analysts reckon that, if a recession strikes, you should avoid emerging market currencies and instead stock up on the U.S. dollar, Japanese yen, Singapore dollar and Swiss franc. "Recessions are when creditors get to ask for their money back. Three of the top four currencies to own during a recession are those of countries that boast extremely strong external positions," they said in a note. Bloomberg
Tencent Tension
The Wall Street Journal has a piece on Tencent, the Chinese tech powerhouse that is apparently in increasing tension with Beijing over the information shared on its WeChat messaging network. The article sets out the laws that WeChat must follow, and how Tencent CEO "Pony" Ma Huateng has had to step up as point man with Chinese regulators. WSJ
How We Got Here
"How did the world’s greatest democracy and economy become a land of crumbling roads, galloping income inequality, bitter polarization and dysfunctional government?" That's the question Steven Brill tries to answer in a fascinating essay for Time. The answer, broadly, is that the generation that "won" the American Dream "were able to consolidate their winnings, outsmart and co-opt the forces that might have reined them in, and pull up the ladder so more could not share in their success or challenge their primacy." Time
This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.
