The Weekly Bottom Line

Our summary of recent economic events and what to expect in the weeks ahead

Date Published: December 6, 2019


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  • Trade tensions reemerged this week. President Trump suggested that the U.S.-China deal could wait until after the election, announced steel and aluminum tariffs on Brazil and Argentina, and threatened to impose tariffs on France. International trade numbers were also unambiguously weak in October, even as trade deficit had narrowed. 
  • Despite uncertainty on the trade front, it was another banner month for America’s job market. Payrolls rose by a healthy 266k in November, with service sector hiring accelerating for the fourth consecutive month.
  • Contraction in the manufacturing sector deepened slightly in November, with the ISM manufacturing index edging lower to 48.1 from 48.3. Service industries continued to expand, alas at a slightly slower pace than in a month prior.

Hiring Remains Solid Despite Trade Tensions

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Chart 1:Divergence Grows Between Manufacturing and Non-Manufacturing Sectors

Trade-related developments and employment data stole the limelight this week.  With the deadline of the next wave of proposed tariffs on imports from China a little more than a week away, investors kept a close eye on the state of the U.S.-China trade negotiations and trade policy more broadly. On that front, comments by President Trump earlier this week suggesting that the U.S.-China deal could wait until after the elections were not encouraging, sending equity markets sharply lower. Sentiment was further dampened by news that the U.S. will restore steel and aluminum tariffs on Brazil and Argentina for alleged currency manipulation, and the threat to impose tariffs on $2.4bn of imports from France.  

Equity markets rebounded toward the end of the week, amid news of Beijing reaffirming that the talks remain on track and the excellent job numbers. Oil prices rallied on the news that OPEC+ countries agreed to deepen existing production cuts, and Saudi Arabia promising to maintain its voluntary 400K bpd cut, bringing total cuts to 2.1 million bpd. 

Trade data was not encouraging this week as trade volumes continued to slow in October. Export and import volumes declined for the second straight month. Since imports fell more than exports the U.S. trade deficit narrowed for the second month in a row, hardly a sign of health.  

Chart 2: Service Industries Ramp Up Hiring

The return of trade tensions this week suggests that trade policy will likely remain volatile and exports sluggish in the year ahead. This is not good news for U.S. businesses, particularly manufacturers, who continue to contend with retaliatory tariffs, weak global demand and a strong Dollar. Manufacturing sentiment ebbed further in November, with the ISM manufacturing index edging lower to 48.1 from 48.3 in October. While the production subcomponent edged higher on the month, it remained in contractionary territory, and new orders and employment sub-indexes continued to deteriorate, signaling that manufacturing output could further worsen before it gets better.

The services sector hasn’t been immune to trade-related headwinds, with the ISM non-manufacturing index edging 0.8 points lower to 53.9 in October. However, it remains well in expansionary territory, supported by resilient domestic demand. Two-thirds of non-manufacturing industries surveyed in October reported growth, compared to less than a third in the manufacturing survey (Chart 1). 

This divergence of fortunes between the manufacturing and services sector continues to manifest in employment data. Payrolls expanded by an impressive 266k in November, with service industries contributing 206k to the headline. Businesses in the services sector have been ramping up hiring since July (Chart 2), while gains remain muted in the goods-producing sector, with the pop in November reflecting the end of the GM strike.  

All in all, despite uncertainty on the trade front and softer global growth, the labor market has remained remarkably resilient. With reports like this, the FOMC can sit comfortably on the sidelines after cutting rates three times this year. As long as international risks do not intensify and hurt confidence domestically, the American economy will remain in expansion, supported by a healthy consumer.

Ksenia Bushmeneva, Economist | 416-308-7392

Upcoming Key Economic Releases

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U.S. FOMC Rates Decision - December*

Release Date: December 11, 2019
Previous: 1.50-1.75%
TD Forecast: 1.50-1.75%
Consensus: 1.50-1.75%

We look for the Fed to keep rates steady at 1.50-1.75% next week, bringing officially to an end the mid-cycle adjustment that encompassed 75bp of policy easing. We also forecast IOER to remain unchanged at 1.55%. The FOMC is likely to communicate patience in deciding future policy moves and to reiterate that a “material reassessment” in the outlook is a precondition for them. We don’t anticipate any dissenting officials next week —a first since the May FOMC meeting.

Chart: U.S. Personal Income and Spending

U.S. Consumer Price Index - November*

Release Date: December 11, 2019
Previous: 0.4% m/m, 1.8% y/y
TD Forecast: 0.2% m/m, 2.0% y/y
Consensus: 0.2% m/m, 2.0% y/y

We look for headline inflation to tick up two tenths to 2.0% y/y in November (0.2% m/m), mostly reflecting a gain in prices in the ex-food and energy segment. In effect, core inflation should stay unchanged at 2.3% y/y on the back of a 0.2% m/m increase. We expect core goods inflation to recover m/m and for core services inflation to stay unchanged at 0.2% m/m. We anticipate OER to advance 0.2% m/m, largely steady vs last month, but for the ex-shelter segment to slow on a monthly basis.

Chart: U.S. Real GDP

U.S. Retail Sales – November*

Release Date: December 13, 2019
Previous: 0.3%, ex auto: 0.2%
TD Forecast: 0.3%, ex auto: 0.2%
Consensus: 0.4%, ex auto: 0.4% 

We look for retail sales to register a 0.3% gain for November, largely matching last month’s print, on the back of a moderate increase in the control group (+0.2% m/m). A 1% gain in auto sales and further gains in sales at gasoline stations should also boost headline growth during the month. All in, data published so far in Q4 suggests a moderate pare back in household spending.

Chart: U.S. Labor Market

*Forecast by Rates and FX Strategy Group. For further information, contact