A lighter week of economic data has put focus back on U.S. and China trade negotiations, with both sides considering roll backs on December tariffs. In response, the 10yr yield was back on Friday at the intraday highs seen during the month of September.
The ISM Non-Manufacturing PMI for October posted up +2.1 points to 54.7, stronger than expectations of a 53.5 print. This is now the second highest reading over the past four months, however, it is still the third-lowest of the past three years. According to ISM, “respondents continue to be concerned with tariffs, labor resources, and the geopolitical climate.” The comments did, however, slightly lean towards the positive side, as 13 out of the 18 industries surveyed reported growth, while only 5 saw contraction.
Non-farm productivity in Q3 fell by -.3%, down from Q2’s revised gain of +2.5% (orig. 2.3%). YoY, the headline is running higher by +1.4%, which is down from the Q2 YoY number of +1.8%. Q3 productivity reflects a +2.1% increase in output, and a surprising +2.4% increase in employee hours. This is the biggest increase in employee hours since Q4 2017 when hours rose by +3.3%. The sharp increase in Q3 also follows a -0.5% decline in Q2 and a modest +.4% increase in Q1, so there could be some seasonality issues here as the volatility QoQ is a bit questionable vs. the data we get in the jobs report each month.
The Univ. of Michigan Consumer Sentiment in its pre-lim read for November ticked up to 95.7 from a previous 95.5. The read is close to the average for 2019 at 95.6 and shows a slightly better outlook by the consumer on expectations for the economy ahead.
Tariffs and Trade Deals
After reports later in the week centered around rollbacks for tariffs set to go into effect on December 15th, the White House is now saying that removing the tariffs was not in fact part of the “phase one” trade deal. The Administration sees this as giving up ground to the Chinese, while saving other tariffs to make sure both sides negotiate phases two and three of the full trade deal.
The September Trade Balance narrowed to its lowest level in five months at $52.5bln, down from a previously revised $55bln in August. Exports fell by -.9%, primarily led by soybeans and autos, and are down by -1.2% for Q3. Imports declined by -1.7% on the month, mostly on consumer goods, and are down -1.3% for Q3. Over the past 12 months, the trade deficit is down -6.4%, with imports down -2.8%, and exports down -1.8%.