This Week's State Of The Economy - What Is Ahead? - 08 November 2019

By: Taro Chellaram /Wells Fargo Economics & Financial Report/Nov 09, 2019

This Week's State Of The Economy - What Is Ahead? - 08 November 2019

U.S. - A Trade War Armistice? Don't Make it a Holiday Yet

  • Optimism soared this week on hopes of a forthcoming trade deal, as equity markets hit all-time highs and the yield curve steepened.
  • Due to the lack of concrete details, we are sticking to our assumption that the 15% tariffs on $156 billion of consumer goods imports will go into effect on December 15, but recognize there is some upside potential to growth and rates if a deal is reached.
  • Regardless, the economy has shown signs of stabilizing. The ISM non-manufacturing survey beat expectations this week by climbing to 54.7 from a three-year low of 52.6 last month.

 

Global Review - Central Banks Still Center Stage This Week

  • Central banks were back in focus this week, starting with Australia. The Reserve Bank of Australia kept its official Cash Rate steady at 0.75% and reiterated that it was prepared to ease policy further if needed.
  • Elsewhere, the Bank of England opted to keep its Bank Rate at 0.75%, but two BoE members unexpectedly voted to cut interest rates.
  • Canada's labor market added fewer jobs than expected in October; however, the unemployment rate remained at a near-record low. Even with the slight drop in October, the Canadian labor market is still performing relatively well.



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It was a mildly busy week for foreign economic data and events, while global COVID-19 cases continued to rise.

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Consumer momentum remains largely intact, inflation continues to inch back down, albeit at a slower pace, and rate-sensitive sectors stayed in a holding pattern.

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The resurgence in COVID-19 in much of the Sun Belt appears to have topped out, although cases are rising faster in some smaller mid-Atlantic states and in parts of Europe, Asia and Australia.

Economic Uncertainty Seems Removed Going Into The New Year 2020

The U.S. economy continues to expand, albeit at a moderate pace. The U.S. Bureau of Economic Analysis reports U.S. gross domestic product (GDP) grew 2.1 percent in Q3/19.

Where Will That $2 Trillion Come From Anyway?

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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Although payroll growth is easing, the labor market remains relatively tight. The unemployment rate inched up to 3.9% in October, slightly higher than the cycle low of 3.4% first hit in January 2023, but still low compared to historical averages.

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Employers continued to add jobs at a steady clip in October, demonstrating the labor market remains tight and the FOMC will continue to tighten policy.

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Data released this week continue to show that the economic recovery has gained momentum in March. The much anticipated consumer boom has arrived.

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Manufacturing held up relatively well in November, despite a larger-than-expected dip in the ISM manufacturing survey. The nonfarm manufacturing survey rose slightly.

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The fact that capital goods shipments surprised on the upside was one of the few things that went right in this week\'s durable goods report.


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