On Thursday, the Institute for Supply Management (ISM) Manufacturing index surprised to the downside. It dropped from 59.3 in November to 54.1 for December, against an expected smaller decline to 57.5. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. So, despite the drop, this index remains healthy. The decline looks to have come from slowing overseas growth, while tariffs are also starting to have an effect, along with an expensive dollar. Still, the index is at a positive level for the economy as a whole and continues to indicate growth.
On Friday, the employment report came in well above expectations, with job growth rising to 312,000 for December. This result was on top of an upward revision of November from 155,000 to 176,000, which more than reverses the negative effect of the weak initial November report. The unemployment rate ticked up from a very low 3.7 percent to a still low 3.9 percent for December, on a rise in the labor force as more workers were drawn back in. Wage growth also accelerated above expectations, from 0.2 percent in November to 0.4 percent for December, on a monthly basis. The increase on an annual basis rose from 3.1 percent to 3.2 percent. Overall, this is another very healthy report and should signal continued economic growth.
On Monday, the ISM Nonmanufacturing index pulled back a bit further than expected, from 60.7 in November to 57.5 for December. This is a diffusion index, where values above 50 indicate expansion and below 50 indicate contraction. This result still leaves it close to the 21-year high from September and well in expansionary territory. The pullback came from slowing growth in the service sector. But even with the pullback, this index remains positive for the economy as a whole.
On Tuesday, the international trade report is expected to show the trade deficit improved slightly, from $55.5 billion to $54 billion. This expected moderation suggests that the damage to exports from the current trade conflict is not getting worse, which would be positive. Overall, however, if the numbers come in as expected, trade will likely continue to be a drag on fourth-quarter growth.
On Wednesday, the minutes from the December meeting of the Federal Reserve Open Market Committee will be released. After the rate increase and hawkish tone of the postmeeting press conference upset markets, analysts will be looking to see whether the actual discussions were more dovish. If so, in conjunction with Chair Powell’s remarks last Friday, markets could react positively.
On Friday, the consumer price reports are expected to show moderating inflation at the headline level. The headline index, which includes food and energy, is expected to decline slightly. It should go down by 0.1 percent for December, from flat for November, on a decrease in gasoline costs. The annual figure is expected to drop to 1.9 percent in December from 2.2 percent in November, which would be a 17-month low. The core index is expected to stay steady at a 0.2-percent increase for December, the same as November, while the annual figure should hold at 2.2 percent. These figures indicate core inflation continues to run somewhat above the Fed’s target levels, which should continue to support interest rate increases.
Have a great week!