Economic Outlook – 8 December 2019


  • Hiring came roaring back in November, as employers added a whopping 266K net new jobs. Employers also hired more workers in October than previously thought with the revised data showing a gain of 156K, up from 128K previously estimated. The unemployment rate ticked back down to its 50-year low of 3.5%.
  • Manufacturing employment rebounded in November, partly due to a reversal of the GM strike in the October data. But still, this was a welcome sign considering the employment component of the November ISM manufacturing survey earlier last week pointed to weakening manufacturing employment. Manufacturing data, more broadly, remain weak with the ISM manufacturing index in negative territory (below 50) for the fourth straight month. There is little sign of recent weakness abating as the forward-looking new orders component slipped to tie its August reading for the lowest of the expansion.
  • The ISM non-manufacturing index remains in expansionary territory, and new orders point to continued growth in the sector. There appears to be some pressure from the trade war, however, as respondents from several industries highlighted cost pressures specifically linked to tariffs, and the import component of the survey remained in contraction for the third straight month. This is corroborated by a 1.7% drop in October imports. The weakness was concentrated in goods imports as services imports actually rose to a record high. Good imports were depressed by a decline in consumer and auto imports; likely trade-related payback and the effects from the GM strike.
  • Last Wednesday opened to news that both sides were moving closer to agreement and that US negotiators expect a “Phase I” deal to be agreed upon before the 15 December tariff deadline. That came after President Trump said on Tuesday that he would be happy to wait until after the 2020 election to make a trade deal with China.
  • The major benchmarks ended mixed for the week after a strong jobs report helped compensate for worrisome signals on the trade front. The smaller-cap benchmarks fared best for a second consecutive week. Within the S&P 500 Index, the consumer staples sector outperformed, helped by a rise in Procter & Gamble shares. Industrial stocks lagged, weighed down by a decline in Boeing as the plane-maker continued to lose sales to Airbus amid uncertainties over the troubled 737 Max airliner. The transportation segment was generally weak, with UPS, FedEx and United Airlines shares all recording losses.
  • The jobs data fostered an increase in longer-term bond yields, which ended higher for the week after reversing a sharp decline last Tuesday. Investors in the investment-grade corporate bond market seemed somewhat risk averse early in the week due to the renewed trade tensions and equity market weakness. However, sentiment later improved amid positive trade headlines and a pickup in demand from overseas investors. New issuance for the week exceeded expectations.
  • The most important event this week is the FOMC meeting on Wednesday. The Fed has clearly hinted that it is going to be on hold for a while and nothing in the data suggests it will change its view at the upcoming meeting despite some hard-versus soft data gaps. In particular the upward revision of nonfarm payrolls has probably eased recession fears among FOMC members.
  • On Wednesday, CPI core in November is due out, which it is expected to rise to 0.2% month-on-month in line with consensus.
  • On Friday, retail sales in November is due out. The foundation for continued private consumption growth looks solid.


  • Voters in the United Kingdom will cast general election ballots next Thursday. Opinion polls have the Conservative Party, led by Prime Minister Boris Johnson, garnering a majority in the 650-seat House of Commons. The Conservatives hold a 10-point lead over the Labour Party in the Financial Times poll of polls. Johnson laid out his plans for the first 100 days of a new parliament, saying his party, if elected, will adopt the Brexit withdrawal agreement, cut taxes and pass a budget. 
  • The UK pound rose to a seven-month peak against the US dollar and the euro, marking its highest level under Prime Minister Boris Johnson. The pound’s recovery came as opinion polls showed the ruling Conservative Party was maintaining a comfortable lead ahead of the December 12 general election.
  • British house prices rose in November at the fastest annual rate in seven months, mortgage lender Halifax released. House prices increased year-on-year 2.1% after a 0.9% rise in October. In November alone, prices rose by 1.0% after a 0.1% drop in the previous month. “While a degree of uncertainty remains evident, it’s also clear that buyers and sellers are responding to factors such as improved mortgage affordability and the limited supply of available properties,” Halifax managing director Russell Galley said.
  • British employers’ demand for staff rose in November at the slowest rate in more than a decade, adding to signs of a waning jobs market ahead of Brexit and next week’s general election, a survey of recruiters showed on Friday. Monitored by the Bank of England, the index of demand for staff from the Recruitment and Employment Confederation (REC) and accountants KPMG fell to 51.4 in November, its lowest since September 2009, from 51.6 in October.
  • There are no market movers in the UK this week.


  • A broad-based strike in France turned violent last Thursday as protestors took to the streets to object to President Emmanuel Macron’s proposed pension reforms. Transport workers, hospital employees, firefighters and teachers, among others, took part in the strike. Macron proposes to replace the hodgepodge of current public and private schemes, which many view as unsustainable, with a universal system for all workers. The cost of the current French system is among the highest in the world, at around 14% of GDP, while the retirement age of 62 is among the lowest
  • Germany too is beset by political instability. Germany’s Social Democratic Party (SPD) elected left-wing leaders who are critical of the party’s coalition with the conservatives and who have a different fiscal policy agenda. While their ascendancy raises the possibility of a snap election, polls show the SPD might slip to the number four position in the Bundestag. It is more likely that the SPD will want to renegotiate current policies to stay in the coalition, although this would mean a greater fiscal expansion.
  • Eurozone inflation accelerated in November, ending a series of monthly declines. Consumer prices increased 1.0% from a year earlier, slightly higher than the 0.9% expected by economists surveyed by Reuters. In September, the European Central Bank said falling inflation was the main reason it cut interest rates and restarted its bond purchase program. November’s data adds to signals that the region’s economy may have begun to stabilize.
  • European stocks ended the week flat, recouping earlier losses sparked by fears that a U.S.-China trade deal might be delayed until after the US 2020 election. Stocks rose Friday after President Trump reassured markets by saying trade talks were “moving right along,” and a stronger-than-expected US jobs report eased fears of a global economic slowdown. The pan-European STOXX Europe 600 Index ended the week flat while Germany’s exporter-heavy DAX index fell 0.5%.
  • President Lagarde will chair her first ECB meeting. No new policy messages are expected, but some think the ECB will formally launch its long-awaited strategy review, although no specific deadline is expected.
  • On Tuesday, the ZEW print for December is out. It is important to understand whether November’s rise in the expectation component continues, since the spread between ‘expectations’ and ‘current conditions’ has usually been a good predictor of upcoming rises in PMI manufacturing.


  • While the closely watched US – China trade talks seems to be edging toward an interim agreement (albeit amid many fits and starts) several fronts in the trade war opened up again this week. Last Monday, US President Donald Trump announced that the United States would reimpose aluminum and steel tariffs on Brazil and Argentina in retaliation for pronounced weakness in the two Latin American countries’ currencies. Trump said the recent currency devaluations were negatively impacting US farmers. Trump also proposed levies of up to 100% on $2.4 billion worth of French luxury goods exports to the US in retaliation for France’s new 3.0% digital services tax, which targets mainly US tech giants. Meanwhile, Chinese officials say that the US and China remain in close contact over trade and that there is “no need to panic” over US legislation targeting China’s human rights record. 
  • Chinese stocks advanced, snapping three straight weeks of losses, as investors sensed that an interim US – China trade deal was close at hand. For the week, the benchmark Shanghai Composite Index rose 1.4%, and the large-cap CSI 300 Index, which tracks blue chips listed on the Shanghai and Shenzhen exchanges, added 1.9%. Friday capped the largest weekly gains for both gauges since the week of 11 October, according to Reuters.
  • On the economic front, China’s factory activity picked up in November from October in its fastest expansion since December 2016, according to the Caixin/Markit Manufacturing Purchasers’ Index, an influential private survey. The Caixin PMI reading came after official data revealed that factory activity in November unexpectedly returned to growth for the first time in seven months. Taken together, both readings showed the effects of government support as Beijing stepped up easing measures to bolster the economy.
  • China releases this week trade balance, FX reserves, CPI and PPI inflation and money and credit growth prints. PPI is likely to stay in deflation territory around -1.5% year-on-year and CPI inflation probably has further to rise from 3.8% year-on-year to above 4.0% year-on-year pulled up by higher food prices due to African swine fever.

Sources: T. Rowe Price, Reuters, MFS Investment Management, Danske Bank, Wells Fargo.