Economic Indicators Playing Games


The US manufacturing sector continues to contract as the ISM manufacturing index came in at 48.1 in November, down 20bps from last month. A reading below 50 is indicative of a contractionary environment, and this marks the fourth straight month of contraction. More concerning is the composition of the index as new orders fell to the lowest level since April 2009. The services side of the economy isn’t doing much better as the ISM non-manufacturing index fell again in November to 53.9, which is only slightly in positive territory. 

Moral of the story: Honestly, the manufacturing sector is effectively already in a recession right now. The services sector isn’t too far behind given the rate of deceleration – the non-manufacturing index hit a 12-year high just last year of 60.8 and has since fallen dramatically to today’s levels. It seems unlikely for these trends to reverse unless we see a resolution in the trade war with China. 


While the trade war with China has had a detrimental impact on much of the economy, it does seem like it’s having an impact on our trade as our trade deficit fell 8% in October. The deficit currently sits at a 16-month low and seems to be primarily driven by lower imports from China, which fell by $1.8b in October after companies were stockpiling ahead of the new set of tariffs against Chinese goods that went into effect in September.  

Moral of the story: While a shrinking trade deficit could provide a little boost to economic growth, October’s numbers were largely related to timing and I wouldn’t give the data too much attention. We’re still on track to have the largest trade deficit in 11 years because of the relative strength of the US economy compared to the slowing global economy – US consumers are still spending lots of money (on domestic and imported products) while global consumers aren’t creating any sort of strong demand for US goods. 


Unemployment fell to a 50-year low in November as we created 266k new jobs in the month. This was the largest increase in employment since January but ~50k of the new jobs were just auto workers returning after the month-long GM strike ended. The jobs gains were fairly broad-based across all industries but healthcare, hospitality, and professional services were on the top of the leaderboard. Despite the upcoming holiday season, retail companies still lagged, adding only 2k jobs, which does not seem to be nearly enough. 

Moral of the story: We’ve averaged 203k new jobs every month for the last three months, which is only slightly lower than the 223k average in 2018. The employment picture still supports a strong economy but it doesn’t seem sustainable given the slowing business environment. At the very least, this should provide consumers with a little boost heading into the holiday shopping season. 

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