Week In Review 12.6.2019

US Manufacturing—The ISM Manufacturing Index fell -0.2 points in November to 48.1, contrary to the consensus of a 1.1-point gain to 49.4. It was the second lowest level since January 2016, and the fourth consecutive month below 50, as factory activity continued to shrink.

Factory Orders picked up 0.3% in October, matching the consensus. Despite the monthly pickup, factory orders continued to decline on a y/y trend basis, down -2.3%, the most since September 2016.

US Services—The ISM Non-Manufacturing Index (NMI) fell -0.8 points in November to 53.9, below the consensus of 54.5, as services activity moderated. It peaked in September 2018, but remains in expansion territory (unlike its manufacturing counterpart), and consistent with trend-like economic growth.

International Trade—The trade deficit shrank 7.6% in October to $47.2 billion, the smallest gap since May 2018, and below the consensus of $48.5 billion. Nearly all of the improvement came from a 5.1% drop in the goods trade deficit to $68.0 billion. The services surplus ticked up slightly to $20.8 billion. Imports fell 1.7%, led by consumer goods (mostly pharmaceuticals, cell phones, apparel, and toys) and vehicles. Exports ticked down a smaller 0.2%, led by consumer and capital goods (e.g., civilian aircraft). On a 12-month total basis, the deficit shrank $9.5 billion to $634.6 billion, its lowest level since April. The deficit with China fell an even larger $11.8 billion to $369.1 billion, the smallest gap since October 2017. But the deficit with Mexico hit a new record high of $99.3 billion. A shrinking trade deficit contributes positively to real GDP growth. However, since the latest decline is led by fewer imports, it also signals weaker domestic demand. In sum, October trade data supports the argument that the economy is on a slower growth trajectory.

According to industry data, U.S. consumer spending over the five-day period from Thanksgiving to Cyber Monday increased by 16% from 2018, suggesting that consumer confidence remains strong despite a number of uncertainties.