Week in Review
Week Ending: Friday, December 6, 2019
Recap & Commentary
Market returns for the week were relatively flat as concerns about U.S. trade policy and manufacturing were offset by a strong November employment report.
Markets sold off at the start of the week as President Trump announced new steel and aluminum tariffs on imports from Brazil and Argentina, threatened 100% tariffs on $2.4B of French luxury goods, and suggested that a trade deal with China might not happen until after the 2020 elections. Though the U.S. is engaged in trade disputes with a number of its trading partners, none are of greater concern to investors than the dispute with China. Thus, markets rebounded some in the middle of the week following statements by both countries that talks continue to progress.
Friday’s strong employment report showed that U.S. employers added 266k jobs in November, easily surpassing the consensus expectation for 186k jobs, and marking the strongest month since January. The strength of the increase coupled with a -0.1% decline in the unemployment rate to 3.5% helped assuage concerns about the broader strength of the U.S. economy.
Economic Bullet Points
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 $99.3 billion. A shrinking trade deficit contributes positively to real GDP growth. However, since the latest decline is led by fewer imports, it also signals weaker domestic demand. In sum, October trade data supports the argument that the economy is on a slower growth trajectory.
According to industry data, U.S. consumer spending over the five-day period from Thanksgiving to Cyber Monday increased by 16% from 2018, suggesting that consumer confidence remains strong despite a number of uncertainties.
Market Indices Week of 11/29
|U.S. Bond Market||-0.2%|
|10-Year Treas. Yield||1.84%|
|WTI Oil ($/bl)||$59|
The Week Ahead
- Retail Sales
- Small Business Optimism