Week in Review 1.10.2020

Employment Report—December nonfarm payrolls increased 145K, below the consensus of 160K. Additionally, the outsized gain of 266K originally reported for November was reduced marginally to 256K. The unemployment rate remained at 3.5%, a 50-year low, matching consensus, and average hourly earnings edged up 0.1% during the month. Earnings failed to accelerate, easing to 2.9% y/y from 3.1% y/y, and below the consensus of 3.1% y/y. That left a disturbing downtrend from its peak nearly a year ago. However, the data was consistent with Fed expectations, so the committee will likely hold rates steady.ISM Services—The ISM Non-Manufacturing Index (NMI) rebounded 1.1 points in December to 55.0, a four-month high, and above the consensus of 54.3, as services activity strengthened. Contrary to its manufacturing counterpart, the NMI is well above the break-even level of 50 and is consistent with a continued moderate pace of economic expansion.

Trade Balance—The trade deficit shrank by $3.9 billion in November to -$43.1 billion, its lowest level since October 2016, and smaller than the consensus estimate of -$43.6 billion. All of the decline was in the goods trade balance. On a 12-month total basis, the trade deficit narrowed by $10.6 billion to -$623.8 billion, its lowest level in a year. The trade gap with China shrank to -$357.7 billion, the least since June 2017.

Boeing’s largest 737 MAX supplier, Spirit AeroSystems, announced that it will layoff 2,800 workers later this month. The decision follows Boeing’s announcement in mid-December that it will stop building the troubled jet now.