The U.S. Created 225,000 Jobs in December as Unemployment Ticked Up to 3.6%… The number of jobs beat the estimate of 165,000, and the totals for November and December were revised modestly higher, up a total of 7,000.
What it means – There were good numbers all around. Even unemployment, which moved up 0.1%, was a good sign because it reflected higher participation in the labor force. At 63.4%, labor force participation is the highest since 2013. On the earnings front, December’s report was revised up to 3.0%, and January came in at 3.1%, which is well ahead of inflation and shows that workers are keeping more money in their pockets.
The economic news was strong enough to encourage investors, but not so strong as to make the Fed consider changing its monetary policy stance from neutral to tightening.
Coronavirus Kills More Than 700, Infects Over 34,000… Wuhan, China, the epicenter of the outbreak, still reports the most deaths.
What it means – The financial markets sold off at the end of January as investors worried about the virus curbing GDP growth, but then the markets rebounded this week with a minor retreat on Friday. That seems odd as we get more reports of deaths and factory closures across China. On a statistical note, the death rate in China per infected people appears to be much higher than the death rate outside of China, which is enough to make anyone familiar with math say, “Hmm.”
Instead of the virus being more deadly in China, it’s likely the nation is vastly under-reporting infections. Expect the infection rate to jump significantly in the next week, and look for the markets to give up some of the recent gains as the somber news sinks in. The one caveat is the possibility of containment. China is working aggressively to stop the spread of the virus, as are officials in most other nations. If we get decent news on containment or even a possible vaccine, there should be a decent relief rally in Asia that will spill over to domestic markets.
Trump Acquitted, Democrats Aggrieved, and Buttigieg Out Front… In a busy political week, the Senate acquitted President Trump of impeachment as the Democrats claimed the death of the Constitution. Pete Buttigieg narrowly beat out Bernie Sanders to take Iowa in the first contest of the primaries.
What it means – Somewhere in there we had the State of the Union, which Trump tugged at our emotions with a Tuskegee Airman, the Presidential Medal of Honor, the parents of women killed by terrorists, and a surprise family reunion with a soldier back from overseas.
With Buttigieg, a young politician with limited national appeal, and Sanders, an almost octogenarian avowed Socialist leading the Democratic presidential nomination race, the next month will be very interesting. If moderate Joe Biden can’t pick up the pace, the race could come down to a president that half the nation can’t stand, an untested young mayor or someone who partied in Russia and has kind words for Cuba. Investors will cheer if Trump’s chances of re-election increase.
ISM Manufacturing Index Jumps into Growth Territory… For the first time in six months, the December manufacturing index moved above 50, the dividing line between growth and contraction. The index was expected at 48.5 but came in at 50.9.
What it means – New orders and production both showed a bit of strength, although employment took a bit of a hit due to the lack of skilled labor. By industry, 18 expanded while eight contracted, and two were unchanged. Muddying the waters, the report reflects manufacturing activity before the coronavirus hit. Don’t expect any follow-through in January. Instead, look for manufacturing activity to roll over as producers pare activity to match the slowdown in demand due to the virus.
Factory Orders Up 1.8% in December… Orders beat the expectation of 1.5%. The November number was revised down from a 0.7% decline to negative 1.2%.
What it means – Factory orders closely followed the manufacturing index as well as durable goods orders from last week. They showed some strength in the final month of the year, but that’s more than 30 days and a lifetime ago as we figure out what demand will look like in the age of the coronavirus.
Federal Deficit Reaches $367 Billion Last Quarter… The federal fiscal year runs October 1 through September 30. The deficit from October 1 through December 30, the first fiscal quarter, put the government on track for an annual deficit of $1.27 trillion.
What it means – There was a time when debt was a four-letter word. Now it’s hard to find any mention of the national debt or deficit in the media. It’s as if borrowing doesn’t matter. Taken to the extreme, the government should borrow hundreds of trillions of dollars and send the free cash to citizens, making all of us wealthy. If that sounds like it would wreck the financial system, then debt and deficits do matter. It’s just hard to identify the tipping point before you reach it. It would be nice if any political candidate appeared to care.
Chinese Consider Using “Get-Out-Of-Jail-Free Card” to Avoid Fulfilling Phase 1 Trade Deal Commitments… The Chinese agreed to increase their spending on U.S. and energy products dramatically, but the coronavirus puts those spending targets at risk. A little-known clause in the trade deal could help the Chinese avoid an economic backlash.
What it means – Phase 1 of the trade deal includes economic punishment if the Chinese fail to live up to their end of the bargain. But the deal also includes notion that the U.S. and China will consult “in the event that a natural disaster or other unforeseeable event” delays either from complying with the agreement. Remember that the deal was signed one day before China told the world about the coronavirus. It’s almost as if they knew the virus could slow economic activity and thereby hurt their economy, so they wanted to get the deal done, all the while knowing they could underperform and claim unforeseen events.
New York Issues Drivers Licenses to Illegal Immigrants, DHS Freezes Trusted Traveler Applications for All New Yorkers… The State of New York wanted to control who drives on its roads but knew that illegal immigrants wouldn’t self-select to have their status reported to the federal government. So New York started a program that verifies identity through foreign passports or foreign drivers licenses but doesn’t report citizenship or immigration status. The Department of Homeland Security took note and informed the State of New York that all of its citizen were now barred from applying for trusted traveler status in programs like CLEAR, NEXUS, and SENTRI. If the federal government can’t verify immigration status, how can it allow people expedited access at borders and customs checks?
Data supplied by Dent Research/Delray Beach Publishing
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