Jobs, ISMs, and Coronavirus Vie for Market Attention

Feb 03, 2020
WuHan Popup Hospital

Jobs, ISMs, and Coronavirus

This week is full of first-tier economic releases but coronavirus headlines will continue to drive market trading more than anything else. Businesses started reacting last week to the spread of the virus and it stands to reason continued moves and developments lay in store this week as well. An economic impact to China is obvious but as western countries and businesses restrict or close businesses in the region it will impact those results as well in the first quarter. Back in the U.S., the January jobs report is expected to reflect numbers comparable to December and that implies a job market that is still growing but with a bit less momentum than in 2019 and prior years. Be that as it may, if the report comes as expected it will help keep the Fed on the sidelines as we move through the first half of 2020.  Along with this week’s jobs report the pair ISM reports will give us another early tell on January activity with the manufacturing sector expected to remain in contractionary territory while the services sector continues to expand.  Given the services sector constitutes nearly 90% of the economy it’s continued strength has more than offset the slide in manufacturing which has benefited the overall economic numbers.


Treasuries
Treasury Curve Today Week Change
3 Month 1.55% +0.04%
6 Month 1.54% +0.03%
1 Year 1.45% -0.05%
2 Year 1.35% -0.10%
3 Year 1.33% -0.09%
5 Year 1.35% -0.10%
10 Year 1.54% -0.08%
30 Year 2.02% -0.06%
Short-Term Rates
Fed Funds 1.75%
Prime Rate 4.75%
3 Mo LIBOR 1.75%
6 Mo LIBOR 1.75%
12 Mo LIBOR 1.81%
Swap Rates
3 Year 1.360%
5 Year 1.356%
10 Year 1.487%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
Feb 3 ISM Manufacturing Index Jan 48.3 48.5 47.2
Feb 4 Factory Orders Dec 0.5% 1.2% -0.7%
Feb 5 ADP Employment Change Jan 155k 159k 202k
Feb 5 Trade Balance Dec -$46.0b -$48.2b -$43.1b
Feb 5 ISM Non-Manufacturing Index Jan 55.0 55.1 55.0
Feb 6 Nonfarm Productivity 4Q P 1.7% 1.6% -0.2%
Feb 7 Change in Nonfarm Payrolls Jan

153k

160k 145k
Feb 7 Unemployment Rate Jan 3.5% 3.5% 3.5%
Feb 7 Avg. Hourly Earnings YoY Jan 2.9% 3.0% 2.9%

calendar icon Top 5 Events for the Week

February 3-7, 2020

1. January Employment Report – Friday
2. January ISMs – Monday/Wednesday
3. Fourth Quarter Productivity – Thursday
4. December Trade Balance – Wednesday
5. Coronavirus Developments – All Week

 

1.  January Employment Report – Friday

The January jobs report is expected to reflect numbers comparable to December and that implies a job market that is still growing but with a bit less momentum than in 2019 and prior years. The headline number is expected to show 160,000 new jobs versus 145,000 in December.  Private sector jobs are expected to increase 150,000 versus 139,000 in December.  The unemployment rate is expected to remain at 3.5% for a third straight month, which remains the cycle low. Meanwhile, wage gains are expected to improve to 0.3% from December’s 0.1%. YoY wage gains are expected to improve a tenth to 3.0% from December’s 2.9%.  In summary, if the report comes as expected it will reflect a labor market that continues to demonstrate solid gains and that will keep the Fed on the sidelines as we move through the first half of 2020.

 

2.  January ISM Survey’s – Monday/Wednesday

Along with this week’s jobs report the pair ISM reports will give us another early tell on January activity with the manufacturing sector expected to remain in contractionary territory while the services sector continues expanding.   The ISM Manufacturing Report is due later this morning and is expected to print at 48.5 versus 47.2 in December. The December print was the lowest since June 2009. The ISM Non-Manufacturing Index follows on Wednesday and as the services sector constitutes nearly 90% of the economy it’s been stronger than the manufacturing side which has benefited the overall economic numbers.  For January, the services index is expected to be 55.1 which would match the December print. The index has averaged 55.7 over the past year so a modest decrease is expected from the yearly average but still above 50 indicating continued health in the services sector while the manufacturing sector’s struggles look to continue.

 

ISM Manufacturing and Non-Manufacturing

 

3.  Fourth Quarter Productivity – Thursday

The first estimate of Fourth Quarter Productivity is expected to print at 1.7% (annualized) which would be an improvement off the –0.2% third quarter print. The third quarter slowdown, however, followed two solid quarters of productivity of 3.5% and 2.5% in the first and second quarters, respectively. If the fourth quarter print comes to pass it would indicate a yearly productivity number around 1.87% which would be quite an improvement off the 2018 print of 1.0%. Increasing productivity is one of the two main ingredients (the other being labor market population growth) that determines to a large extent potential GDP  growth. Since population growth has been stuck in the 0.5% range for awhile getting productivity rates above 2% are key in moving potential GDP growth rates over 2.0% as well.

 

4.  December Trade Balance – Wednesday

The monthly trade balance reports get a lot more attention these days given the focus on trade deals and tariffs. For December, the overall trade balance (goods and services) is expected to widen to -$48.2 billion versus -$43.1 billion in November. The trade deficit has ranged from a  twelve-month wide of -$60.8 billion last December to a narrow -$43.1 billion in November. The deficit was -$59.9 billion a year ago, so with all the trade-related headlines and tariffs, the deficit is expected to have narrowed by $13 billion over the last year but much of that comes from a reduction in imports rather than an increase in exports which hints at some softening in consumer spending.

 

5.  Coronavirus Developments – All Week

Businesses started reacting last week to the spread of the coronavirus and it stands to reason continued moves and developments lay in store this week as well. Some airlines started suspending flights into and out of China last week, while Starbucks announced the closing of 2,000 stores in China.  KFC and Pizza Hut were also closing stores in more heavily hit provinces and Disney’s Shanghai park remains closed.  Some China-based cruise lines are reporting incidents of ships being turned away at foreign  ports while the UK is quarantining citizens returning from Wuhan. If the spread of the virus continues, you can expect these types actions to continue. An economic impact to China is obvious but as western countries and businesses restrict or close businesses in the region it will impact those results as well.

 


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CenterState Disclosure

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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