This Week's State Of The Economy - What Is Ahead? - 03 January 2020

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Jan 04, 2020

This Week's State Of The Economy - What Is Ahead? - 03 January 2020

U.S - Geopolitical Developments Ring in the New Year

  • It was a light week for economic data in a shortened holiday week. But, news of President Trump ordering an airstrike in Iraq and killing a top Iranian military general resulted in a risk off response from markets as oil prices surged and Treasury yields fell early Friday morning.
  • Markets were also pressured from the latest ISM manufacturing report, which signaled further deterioration in the sector with the index falling to its lowest level since 2009.
  • The Conference Board reported a decrease in consumer confidence for the final month of the year, but we continue to see strong consumer fundamentals.

 

Global - China Showing Signs of Stabilization

  • China’s economic activity and PMI data have improved and beat consensus forecasts in November and December. While we continue to believe China’s economy will decelerate in the coming years, a Phase I trade deal and reduction to the reserve requirement ratio for Chinese banks should provide some support to China’s economy.
  • Chile’s economy continues to be disrupted by political protests, with the most recent data indicating the economy contracted for the second consecutive month. Given the updated data, it is likely Chile’s economy contracted in Q4-2019 and could fall into technical recession in 2020.



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Economic data this week indicated that the ongoing expansion still has some momentum despite some familiar headwinds, though this week\'s releases were largely overshadowed by a busy week on Capitol Hill.

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Oil prices went negative for the first time in history on Monday as the evaporation of demand collided with a supply glut. In the past five weeks, 26.5 million people have filed for unemployment insurance, or more than one out of every seven workers.

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The manufacturing sector is showing a great deal of resilience, with the ISM Manufacturing survey exceeding expectations, at 60.7, and factory orders remaining strong.

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Net Treasury issuance is set to surge in the coming weeks and months. At present, we look for the federal budget deficit to be $2.4 trillion in FY 2020 and $1.7 trillion in FY 2021.

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The beginning of this week saw some optimism that the economic downturn could be relatively short-lived, but data through the rest of the week provided grim reminder of the economic damage from COVID-19.

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The international economic news over the past week has been somewhat mixed. On the positive side, China’s October data showed ongoing growth in manufacturing and firming retail and service sector activity.

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In our recently released second report in this series of economic risks, we focused on the potential of demand-side factors to lead to significantly higher U.S. inflation in the next few years.


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