The slowing economy is no longer a surprise: Morning Brief

Myles Udland
Markets Reporter

Thursday, December 5, 2019

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Even if it remains a disappointment

The U.S. economy is slowing.

This was confirmed by service-sector data and labor market data released on Wednesday.

But the economy’s trajectory is no longer a surprise to investors and no longer has markets bracing for a recession to break out just around the corner.

In November, the Institute for Supply Management’s reading on service sector activity fell to 53.9 from 54.7 in October. Readings above 50 indicate expansion in the sector while readings below indicate contracting activity. The ISM said in its report that “respondents hope for a resolution on tariffs and continue to be hampered by constraints in labor resources.”

Service sector data from IHS Markit also released Wednesday actually showed an increase in activity last month to hit a four-month high. Respondents to IHS Markit’s report attributed this increase in the sector to an uptick in client demand.

“With both services and manufacturing reporting stronger rates of expansion, the November PMI surveys indicate the fastest pace of economic growth for four months,” said Chris Williamson, chief business economist at IHS Markit. Williamson added that the firm’s manufacturing and service-sector readings together indicate GDP growth around 1.5% and monthly job gains of around 100,000.

ADP’s latest read on private payroll growth was more of a disappointment than the service-sector readings, showing that employers added just 67,000 jobs last month, below estimates for 135,000 jobs and the slowest pace of job growth in six months.

These are not stellar numbers, to be sure. But these figures are an indication that the much-feared recession is unlikely to materialize. Growth is slowing but the economy is not contracting.

As we’ve written several times over the last few months, the labor market is the real proving ground for where the economy stands. Employers can and will respond in lots of different ways to qualitative surveys like ISM and IHS Markit’s surveys. Material turns in the economy, however, won’t come without the labor market shifting into a markedly higher or lower gear.

Ian Shepherdson at Pantheon Macro said Wednesday that while this month’s bad ADP reading doesn’t indicate a new trend, “forward-looking surveys signal no relief over the next couple of months.”

The U.S. economy is slowing, but it's still growing.

“This is not about supply-side constraints, with firms unable to find all the people they want; labor demand clearly has weakened as the trade war has dampened activity, both directly via the cost of the tariffs and indirectly by creating great uncertainty for businesses,” Shepherdson added.

In other words: the trade war’s impact is real. And the trade war, as we argued earlier this week, isn’t going away anytime soon.

But when it comes to financial markets, investors have shown a declining interest in the daily on-again, off-again nature of U.S. or Chinese officials comments on the state of play. In recent sessions stocks have declined and stocks have rallied on trade headlines.

Economic data, however, has not been a longer-term market mover. The market’s broad trend in the last few months has been shaped by an investor class that no longer views a recession in 2020 as likely.

The Federal Reserve has also indicated that it will act as necessary to sustain the expansion, which Fed Chair Jay Powell believes can continue “effectively indefinitely.”

And so long as the economy’s growth trajectory levels out at being “slower” and not “lower,” and as long as Powell and the Fed remain committed to doing their part in backstopping declines in markets and business confidence, investors aren’t likely to re-visit its current economic assumptions.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today


  • 8:30 a.m. ET: Initial Jobless Claims, November 30 (215,000 expected, 213,000 prior); Continuing Claims, week ended November 23 (1.661 million expected, 1.640 prior)

  • 8:30 a.m. ET: Trade Balance, October (-$48.7 billion expected, -$52.5 billion in September)

  • 9:45 a.m. ET: Bloomberg Consumer Comfort, week ended December 1 (60.5 prior)

  • 10 a.m. ET: Factory Orders, October (0.3% expected, -0.6% in September)

  • 10 a.m. ET: Durable Goods Orders, October final (0.6% prior); Durables excluding Transportation, October final (0.6% prior)

  • 10 a.m. ET: Capital Goods Orders Nondefense excluding Air, October final (1.2% prior)



  • Kroger (KR) is expected to report third-quarter adjusted earnings of 49 cents per share on $28.18 billion in revenue.

  • Other notable reports: Dollar General (DG), Tiffany & Co (TIF)


  • Ulta (ULTA) is expected to report adjusted earnings of $2.13 per share on $1.69 billion in revenue.

  • Other notable report: Zoom Video Communications (ZM)

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