Low Unemployment Has Its Dark Side

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ICYMI

Stocks and bonds had awful days. North Korea threatened to cancel the Trump summit. 

Uh-Oh: Unemployment Is Low

Good news: Unemployment is near rock bottom. Also, bad news: Unemployment is near rock bottom.

Of course, the current unemployment rate of 3.9 percent, the lowest since 2000, is preferable to, say, the nearly 10 percent it hit in 2009. But unemployment lows are typically harbingers of recessions, Stephen Mihm warns: “… for the 10 recessions that have hit since 1950 … the average time between troughs in the unemployment rate and the onset of recessions was approximately 3.8 months …”

Yowza. But also, duh: By the time you have enough distance to recognize the unemployment bottom, you’re already climbing out of it. And by then you already know the economy’s in trouble because unemployment is rising. QED.

And, as Mihm points out, we don’t know if we’ve hit bottom yet. Unemployment could keep falling or at least stay very low for a long time. Unemployment mostly swings from one extreme to the other, but there have been stretches of relative stability:

All of those stretches, though, happened many decades ago.

Another worrisome thing: Job cuts have accelerated lately in the service sector, which comprises about 80 percent of the economy, writes Danielle DiMartino Booth. “More than any other data, the need to hire workers speaks to demand building in the economy’s pipeline, or lack thereof,” she writes. 

None of this means we’re in a recession or even that one is coming soon. But, along with a stock market weirdly unable to enjoy good news and a bond market seemingly in the early throes of a meltdown, it sure feels bearish.

China Trade Peace: Errata

Yesterday, in my haste to cheer friendlier U.S.-China relations, I glossed over some key, not-so-cheerful details.

For one thing, ZTE, the Chinese telecom-equipment maker at the heart of the China-U.S. thaw, could pose just a bit of a national-security threat. Bill Evanina, President Donald Trump’s pick to head the new National Counterintelligence and Security Center, told a Senate panel as much today. He echoed warnings from Republican and Democratic lawmakers yesterday that ZTE’s phones could be used for espionage.

Secondly, when Trump vowed to ease sanctions on ZTE, reportedly in exchange for China going easy on U.S. farm imports, he didn’t just surrender a valuable bargaining chip. He also set a terrible precedent, writes David Fickling: “Any government entangled in a dispute with Washington now knows that it need only threaten the Trump-voting farm belt to get off the hook.”

Such governments include signatories to the Iran nuclear deal Trump scrapped last week. His ZTE waffling undermines all his tough talk about not making empty threats, writes Eli Lake.

Finally, it just so happens that, on the day Trump discovered previously unplumbed depths of concern for Chinese workers, an Indonesian business venture of his was promised $500 million in Chinese loans.

Kumbaya, I guess?

Home Sweet Home Depot

You’ve probably heard retail is having an apocalypse. The Home Depot Inc. is apparently immune to zombies or nuclear winter or whatever, because it just keeps steadily churning out strong, boring growth, writes Sarah Halzack. I mean, look at this chart:

Chalk that up partly to a strong housing market, and partly to the fact that Amazon.com Inc. hasn’t yet figured out how to jam the home-improvement business into its gaping maw. But sound management also helps, Sarah writes.

Cold as ICE

One unexpected feature of the Trump administration has been that it isn’t deporting immigrants at quite the rate President Barack Obama did. Frank Wilkinson explains why: Obama cracked down on immigration to try to lure Republicans to the comprehensive-reform table. (They rejected him, true to form.) Trump, in contrast, has tried to ramp up deportations, but many big cities and states are resisting. In Trump-friendlier locales, though, ICE is breaking up families and arresting non-criminals. “Trump … can win a war of attrition,” Frank writes.

Chart Attack

Regulators are about to loosen the Volcker Rule, after years of ref-working by banks. But the rule is already full of loopholes, and banks have curbed the kind of trading the rule seeks to curb anyway, writes Stephen Gandel.

Speed Round

Legalized sports betting won’t make Mark Cuban (or any other American team owner) much richer. – Joe Nocera

Israel’s reaction to Gaza violence suggests peace is less likely than ever. – Zev Chafets

Figuring out “who lost Russia” could help the U.S. not lose Europe, China, etc. – Leonid Bershidsky

Kicker

How Tom Wolfe (RIP) became Tom Wolfe, by Michael Lewis.

Note: Please send three-piece white suits, suggestions and kicker ideas to Mark Gongloff at mgongloff1@bloomberg.net.

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