Economic outlook – 1 December 2019


  • As the Thanksgiving holiday compressed the economic indicator schedule into the first half of the week, market attention remained squarely focused on the data performance in order to gauge the overall health of the US economy during the final months of 2019.
  • With regards to the consumer, the landscape remains largely positive. Consumer confidence, as measured by the Conference Board, unexpectedly eased in November to a level of 125.5. While this marks the fourth consecutive month of declines, consumer confidence remains in elevated territory. In addition to a still-healthy labor market, low gasoline prices and a stock market running near record-high levels continue to suggest that the major drivers of confidence remain supportive of solid consumer spending growth.
  • Despite the lackluster confidence performance, retail sales and other measures of consumer spending remain on track for moderate growth in the current quarter. On an inflation-adjusted basis, consumer spending is running at a 2.5% annualized rate over the past three months. While marking a deceleration from stronger rates of growth recorded in prior months, the trend pace still suggests consumer spending growth should hold up reasonably well in the fourth quarter.
  • Looking at the factory sector, the advance reading of October durable goods orders beat expectations, rising 0.6% over the month. Encouragingly, core capital goods shipments–a proxy for business equipment spending (also unexpectedly increased, posting the largest monthly gain since January). While the October performance offers a glimmer of hope that manufacturing activity could be stabilizing, the trend in orders growth remains lackluster and thus likely to limit any potential capex gains.
  • The dichotomy between the consumer and factory sectors continues, with the former still expected to provide the lion’s share of support to overall GDP growth for the foreseeable future. No doubt, the consumer has been the linchpin of growth in extending economic expansion this year, especially in light of heighted trade tensions, political drama out of Washington D.C. and slowing global growth.
  • The Fed’s preferred inflation measure (the core PCE deflator) rose only 0.1% in October. The Dallas Fed’s trimmed mean (which strips out price volatility more broadly than food and energy) has been steady at the Fed’s 2.0% target for a few months. There is little on the inflation front to spook the Fed to either cut or raise interest rates any time soon. Early in the week, Chair Powell highlighted the benefits of extending the current economic cycle (mainly that lower income households have not yet regained the wealth lost in the great recession).
  • The US economy expanded at a 2.1% annual pace in the third quarter, an upward revision of the 1.9% rate reported in October. That’s slower than the 3.1% rate in the first quarter of the year. Corporate profits declined 0.6% on the quarter. Data compiled so far in the fourth quarter suggest the pace of growth will decelerate, due largely to a slowdown in business investment. However, there were two Q4 bright spots this week as new-home sales rose in October at the fastest pace in 12 years and durable goods orders rose a better-than-expected 0.6%. 
  • Growing optimism about a “phase one” trade deal helped stocks close higher for the holiday-shortened week. The large-cap Dow Jones Industrial Average and S&P 500 Index reached record highs, as did the technology-heavy Nasdaq Composite Index. Trading volumes were elevated early in the week but trailed off as traders headed off to celebrate Thanksgiving. Markets were closed Thursday in observance of the holiday and shuttered early Friday.
  • President Trump signed into law two bills aimed at curbing human rights abuses in Hong Kong. One bill threatens to strip the region of its special trading status with the US. China has strongly condemned the US action, saying it amounts to interference in its internal affairs, but the new law is not expected to seriously disrupt ongoing trade talks. 
  • Economic data and news on the trade deal failed to move the bond market much, with longer-term Treasury yields staying within a narrow band over the week.
  • ISM manufacturing and non-manufacturing indices for November are due on Monday and Wednesday, respectively. ISM manufacturing is weak but the regional indices and the Markit PMI manufacturing index point to an increase. There are many indicators for ISM non-manufacturing but a couple suggest at least a stabilisation.
  • The highlight of the week is the jobs report for November, due out on Friday. Employment in October was quite strong, both when looking at the revisions to the previous months and when taking into account that the strike at General Motors (affecting nearly 50,000 workers) pulled down the headline despite soft indicators suggesting a more severe jobs growth slowdown. Soft indicators continue to indicate a softening in employment growth but the headline is likely to be strong, as the striking workers have returned to work.


  • With less than two weeks before the British general election, UK Prime Minister Boris Johnson’s Conservative Party maintains around a 12-point lead over the opposition Labour Party in opinion polls ahead of the 12 December vote. Statistical projections suggest the Conservatives will garner a majority of between 50 and 70 seats. Last week, Labour leader Jeremy Corbin said he would remain neutral on Brexit if he becomes prime minister, in stark contrast to the strongly pro-Brexit Johnson.
  • The British pound rose 0.7% against the US dollar as another poll suggested that a Conservative Party win was the likely outcome of the upcoming UK elections. The YouGov poll predicted that the Conservative Party would win 359 seats, giving it the largest working majority in decades. Prime Minister Boris Johnson has promised that he will deliver a new Brexit deal to Parliament before Christmas.
  • British consumers, whose spending has helped drive the economy since the Brexit referendum shock of 2016, picked up the pace of their borrowing for the first time in 16 months in October. The growth rate in unsecured consumer lending increased to 6.1% in the 12 months to October from 5.9% in September, the first increase in the annual growth rate since June 2018, the figures from the Bank of England showed. Consumers have slowed the pace of their spending since voters decided to leave the European Union more than three years ago but the loss of momentum has contrasted with cuts to investment by business, helping the overall economy.
  • Final PMIs are due out on Monday but given that IHS Markit has begun releasing flash estimates, they are unlikely to attract much attention if they do not show big revisions, which is the case for the rest of Europe.


  • The November flash annual consumer price index beat expectations, and was 1% year-on-year, compared to 0.7% the previous month. Core inflation also beat expectations, recording 1.3% compared to 1.1% the month before. This was, however, to some extent driven by base effects. In particular, an uncharacteristic monthly uptick in non-energy goods inflation provided a boost to core inflation, whereas a similar uptick in foods further strengthened headline inflation. Furthermore, unemployment in October remained constant at 7.5%.
  • German consumer sentiment rose unexpectedly in December, according to a survey published by the GfK institute. The improved mood among buyers is expected to give a boost to household spending and support the export-driven German economy, which has come under pressure from US – China trade tensions and Brexit uncertainty. Income expectations also improved in line with a strong labor market, rising wages, and moderate inflation, according to the institute. An unexpected drop in German unemployment added to positive sentiment that the country’s manufacturing slowdown may be coming to an end. Joblessness fell by 16,000 in November, and the jobless rate held at 5.0%, near a record low.
  • German Chancellor Angela Merkel and French President Emmanuel Macron proposed a “Conference on the Future of Europe” designed to make the European Union more united and sovereign. A two-year process is envisioned, with the goal being an EU more democratic and less reliant on the type of backroom deal that resulted in the appointment of the incoming European Commission that takes office on 1 December.
  • In the euro area, focus is set to be on the final Q3 GDP estimate, which is due out on Thursday, when for the first time, detailed information about the GDP components will be released. The flash estimates showed that the euro area economy is limping along with a growth rate of 0.2% quarter-on-quarter. Collateral damage from the tougher global trade environment are expected to show up negatively in the export component but Brexit stockpiling might again have contained the damage. Furthermore, it will be interesting to see whether domestic demand is starting to feel the pinch as well.
  • On Friday, October German industrial production figures will show how the manufacturing sector started Q4. In September, production continued to fall by 4.4% year-on-year but recent signs of a forming trough in leading indicators such as Ifo and PMI leave hope that the worst of the German industrial recession is over.


  • Trade negotiators from the United States and China spoke by phone Tuesday. Chinese trade officials said the two sides had “reached consensus on properly resolving relevant issues” and had agreed to continue working toward a resolution of the remaining issues addressed by the phase-one deal. The proposed agreement is shaping up to be more comprehensive than investors had anticipated, with deeper intellectual property protections from China having been added to the package. Both sides appear to seek the a more complete deal because of the difficulties of making progress on trade matters in advance of a US presidential election, such as the one in this fall.
  • Chinese stocks fell for the third straight week as President Trump’s signing of a bill supporting the Hong Kong protesters drew displeasure from Beijing and complicated bilateral trade talks aimed at forging a partial trade deal between both countries. For the week, the benchmark Shanghai Composite Index declined 0.5% and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, gave up 0.6%. Both gauges fell to their lowest levels of the week on Friday, a day after China officially condemned the US legislation and vowed to take “firm countermeasures”.
  • Poor economic data also pressured Chinese stocks. Industrial profits in China fell in October for the third straight month by a worse-than-forecast 9.9% from a year ago, accelerating September’s 5.3% decline, the country’s statistics bureau revealed Wednesday. The contraction was the latest report suggesting that China’s economy had yet to bottom out as a trade deal with the US remains elusive and raised the likelihood that Beijing would soon roll out fresh easing measures to support the economy.
  • The key focus in China on the data front will be the batch of PMI data from both Caixin (private) as well as NBS (official). It is set to be very interesting, as the two sets of data show a very different picture currently. Caixin PMI manufacturing has increased sharply in recent months, while NBS PMI manufacturing has stayed at lacklustre levels. The truth could be somewhere in between, as suggested by a range of different indicators (electricity production, rail freight, copper prices, etc.). Hence, a big decline is expected in Caixin PMI manufacturing on Monday from 51.7 to 51.0 (consensus 51.2) but a small increase in NBS PMI manufacturing from 49.3 to 49.7 (consensus 49.5) on Saturday.

Sources: T. Rowe Price, Reuters, MFS Investment Management, Handelsbanken Capital Market, Danske Bank, TD Economics, Wells Fargo.