Mixed economic data, articles of impeachment, trade deals and tariffs, it was nothing new this week. Markets continue to react to headlines, while the labor market continues to hold strong.
ISM Manufacturing Index
The ISM Manufacturing index fell to 48.1 in November, down from a previous 48.3 in October, and now at its fourth straight monthly decline. While there was some speculation of late that the manufacturing sector could return to a neutral setting or show slight expansion (over a 50 reading), it’s apparent that global trade remains the largest issue facing the sector. New orders dropped to 47.2 from 49.1, now the lowest level seen since June 2012. Inventories came in at 45.5, down -3.4 points from October’s reading. The employment index also weakened, down to 46.6 from a prior 47.7.
ISM Non-Manufacturing Index
The November ISM Non-Manufacturing Index fell to 53.9 from a prior 54.7 in October. Even with a decline, the index is holding above the 50 mark, and above the 37-month low of 52.6 from September. Within the report, the business activity index saw the most decline, falling -5.4 points to 51.6. New Orders rose by 1.5 points to 57.1, now the highest in three months, while the employment index improved for a second straight month, up 1.8 points to 55.5.
U.S. Trade Deficit
The U.S. Trade Deficit narrowed in October to $47.2bln from a downwardly revised $51.1bln back in September (orig. $52.5bln). Within the October data, exports fell by -.2%, while imports fell by -1.7%. However, with a narrower deficit, we should see less of any drag back on GDP growth ahead. The monthly trade deficit has now fallen from a high of $60.8bln in December 2018 to $47.2bln.
The pre-lim December University of Michigan Consumer Sentiment Index showed an increase to 99.2 from 96.8 in November. The assessment of current conditions, and expectations, both increased. Inflation expectations drifted lower from 2.5% to 2.3% for the 5-10yr outlook and from 2.5% to 2.4% for the 1yr outlook.
November headline jobs rose by +266k on a boost from manufacturing, while the unemployment rate dropped to 3.5%, and average hourly earnings were up +.2%. Given the overload of uncertainty facing global economies right now, payroll growth has proven to hold up quite well. These results will keep the Fed “on watch” for now and lessens any chance of a further rate cut in the short term.