Jobs Report and China Trade Share Center Stage This Week

Mar 04, 2019

Jobs, Trade and Services

The week ahead will be headlined by the February jobs report which is due Friday but the release runs the risk of being eclipsed by any US/China trade news. The employment picture is expected to reflect a slowing in the headline number (185k vs. 304k) but with the unemployment rate  dipping to 3.9% from 4.0%. Wage gains are expected to remain strong as well (3.3%YoY vs. 3.2%). Meanwhile, trade negotiations with China continue and with the North Korean summit ending without a deal, and the Cohen testimony in the history books, the Trump administration would like to get a win in the books and soon. We’ll get a double-dose of housing activity this week with  December new home sales tomorrow which are expected lower while January home starts on Friday  are expected higher. We mentioned last week that housing affordability is improving such that the latest data should start to show improvement and that could be the case if the expected numbers are realized.


Treasuries

Treasuries

Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar

 


calendar icon Top 5 Events for the Week

MAR 4 - 8, 2019

1.  February Employment Report - Friday
2.  China Trade Developments – All Week
3.  Dec. & Jan.  Housing Activity — Tues./Fri.
4.  February ISM Non-Manufacturing Index — Tuesday
5.  December Trade Balance — Wednesday

 

 

1.  February Employment Report - Friday 

This Friday’s February jobs report is likely to show a softer headline number versus January’s outsized gain but with most other metrics still pointing to solid progress in the labor market.  The headline number is expected to ease off back-to-back 300k gains to a more moderate 185k. While a reversion to the mean is expected in the headline number, the report should reflect a labor market that continues to shine.  Even with a less lofty headline number the unemployment rate is expected to dip to 3.9% after creeping up a tenth to 4.0% in January.  Wage gains are expected to remain solid as well with a 0.3% monthly increase expected versus 0.1% in January and 3.3% YoY versus 3.2%. In summary, if the report comes as expected it will show a labor market that continues to truck through all the market and geopolitical volatility.

 

2.  China Trade Talks – All Week

The trade negotiations with China continue and will take on added emphasis after the North Korean summit ended without a deal and the Cohen testimony continuing to reverberate through the halls of Congress. The Trump administration would like to get a win in the books; thus, the market is anticipating a deal of some sort will be announced soon. The question is will it be a true substantive deal, or one that is more show. Even in the latter case it should push yields higher but given the limited nature of an expected deal it’s not likely to lead to a lasting upward trend in yields. In addition, once a China deal is announced attention will turn to Europe and possible car tariffs and that could have a more significant near-term impact than any modest trade deal with China.

 

3.  Housing Activity — Tuesday/Friday

We’ll get a double-dose of housing activity this week with  December new home sales tomorrow and January home starts on Friday. A mixed read is expected but one that could play into our thesis. While the older December new home sales number is expected to be soft, the more recent January home starts number is expected to show a nice bounce over the prior month.  We mentioned last week that housing affordability is improving with increased wage gains, reduced mortgage rates, and slowing home price appreciation and that should provide a bounce to the very latest housing data and that should be the case with this week’s numbers.

 

4.  February ISM Non-Manufacturing Index — Tuesday

After last Friday’s weaker-than-expected ISM Manufacturing Index the non-manufacturing, or services, sector read takes on added importance since this sector constitutes nearly 90% of the economy. Expectations are for the ISM services sector to print a 57.3 versus 56.7 in January. The average over the past year has been 58.7 so a slight decrease from the average but a solid result nonetheless is expected. The manufacturing weakness is most likely attributable to the third and fourth quarter inventory overbuild that was noted in last week’s GDP report. Factory activity could be slowing to allow some run-off of the excess inventory and that is feeding into weaker first quarter GDP expectations (Atlanta Fed GDPNow is forecasting 0.34%).

 

ISM Manufacturing and Non-Manufacturing

 

5.  December Trade Balance — Wednesday

The advance goods trade balance report last week revealed a widening in the deficit (-$79.5b vs. -$70.5b) as imports continued to increase while exports slowed which coincides with the weakening global growth story juxtaposed with still solid domestic growth. Adding to the goods balance international trade that involves services and financial items the December deficit is expected to widen to  -$57.9 billion versus -$49.3 billion the prior month. The expected widening is a reflection of the goods deficit that was noted  last week, and makes clear despite tariffs and other hurdles our consumption-based economy is likely to have trade deficits as long as our economy remains strong and the rest of the world not so much.

 

 

 

 


arrow up icon Investment Yield Ranges Over Last Year

 

US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg

 

 

 


 

Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

 

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