Week of January 27- 31, 2020

Maureen Kelliher, CFA

Maureen Kelliher, CFA

February 5, 2020

Weekly Economic Review

Weekly Macro Updates

Initial Jobless Claims (Jan 25)  215k est., 216k actual, 223k prior
Continuing Claims (Jan 18) 1730k est., 1703k actual, 1747k prior
Wholesale Inventories MoM (Dec P)  0.1% est., -0.1% actual, 0.1% prior: R-
Pending Home Sales MoM (Dec) 0.5% est., -4.9% actual, 1.2% prior
GDP Annualized QoQ (4Q A)  2.0% est., 2.1% actual, 2.1% prior
Personal Consumption (4Q A)  2.0% est., 1.8% actual, 3.2% prior
Core PCE QoQ (4Q A)  1.6% est., 1.3% actual, 2.1% prior
Personal Income (Dec) 0.3% est., 0.2% actual, 0.4% prior: R-
Real Personal Spending (Dec)  0.1% est., 0.1% actual, 0.3% prior
PCE Deflator YoY (Dec)  1.6% est., 1.6% actual, 1.4% prior: R+
PCE Core Deflator YoY (Dec) 1.6% est., 1.6% actual, 1.5% prior: R+
ISM Manufacturing (Jan) 48.5 est., 50.9 actual, 47.8 prior: R+
ISM New Orders (Jan)  47.7 est., 52.0 actual, 47.6 prior: R+

 Strong or Improving
 Inconclusive or lacking trend
 Weak or declining
R+ Revised up
R- Revised down

Directional change based on general
long-term tends.

Capital Market Implications

Although the economic outlook continued to darken last week as the Coronavirus spread, the actual news from the economic front at home was sanguine.  Growth in the fourth quarter came in as expected, up 2.1% annualized, the Federal Reserve’s preferred inflation gauge (PCE deflator) registered a benign 1.6% increase over the last year for both headline and core measures and the manufacturing ISM turned positive in January for the first time since July.  The ISM manufacturing index printed above 50 last month with most of its subcomponents expanding.  Production and new orders, which are considered forward looking indicators, rebounded sharply, which suggested the improvement was related to ebbing trade tensions.  Unfortunately, in light of the recent health related slowdown in China, it remains to be seen whether or not the manufacturing rebound can be sustained.

Investors found little to cheer about last week.  Although most fourth-quarter earnings announcements were decent, there was no indication China would be returning to normal any time soon.  Thus, for the second consecutive week, the S&P 500 Index and the Dow Jones Industrial Average sold off, declining -2.1% and -2.5%, respectively.  After a particularly sharp pullback last Friday, only utilities along with retail stocks remained in positive territory (a stronger-than-expected quarter for Amazon boosted retail stocks).  International markets were again the weakest, with developed foreign markets slumping -2.5% and emerging markets plunging -5.0%.  Bonds continued their rally from the previous week, as investors sought protection in less volatile assets.  For the week overall, the Barclay’s US Aggregate Index gained 0.6%, US corporate bonds increased 0.5% and 10-year municipals bonds rose 0.4%.  High yield bonds were once again the week’s only losers having declined -0.3%.