Week In Review 6.7.2019

US Manufacturing data has moderated significantly in May in reaction to the escalating trade war with China, US threats to impose tariffs on Mexican goods, and the risk of tariffs on imports from Japan and Europe. Further, the ISM now estimates that its latest index reading (52.1) corresponds to 2.7% real GDP growth annually. Overall, softer activity is weighing on the Q2 growth outlook.

US Services data was flat to improving in May. Specifically, the PMI services index came in flat month-over-month, while the ISM Non-Manufacturing index posted a slight increase. More important than the marginal variance, however, is the fact that both measures continue to hover at levels well-below their cycle highs reached in September 2018, and both their 3- and 12-month averages moved lower, which decisively suggests decelerating growth.

International Trade—The trade deficit narrowed to -$50.8B in April, after accounting for a wider-than-expected March revision (-$51.9B vs. -$50.0B), which may mean less of a boost to Q1 GDP growth from trade than reported.

Employment—Job growth was noticeably weaker in May, with firms adding only 75k jobs to payrolls, well below the 180k consensus estimate. Additionally, the prior two months of gains were revised down by a total of 75k, effectively resulting in net zero job creation last month. The slowdown in hiring is not entirely surprising, however. Job openings and small business hiring plans have come down since the start of the year, while jobless claims have more or less remained steady. YTD, employers have added an average of 161K jobs compared to 223K in 2018.

According to a Bloomberg article, the glut of natural gas in Texas, resulting from shale oil drilling, has become so large that some drillers are now injecting the gas back underground in an attempt boost production from older oil wells.