The U.S. Economy Keeps on Chugging

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Figure 1. Manufacturing PMI has Generally Slowed across the Globe

Special Guest Blogger: Tim Kearney

The JP Morgan World Aggregate PMI (Manufacturing) fell to 50.7 in January 2019, from 54.4 one year earlier (Figure 1). The slowdown is pretty much general across the globe, with Germany, China, South Korea, Italy and Taiwan below 50 — indicating contraction — and the Eurozone holding on at 50.5, off from 59.6 one year earlier. Contraposed is the United States, where the ISM Manufacturing PMI clocked in at 56.6 in January, up from 54.3 in December and outperforming expectations. The downturn has been gaining since October 2018, as more countries have become sluggish.

In Germany, along with the fading PMI, November industrial production (IP) fell by 4.7% year-over-year and the downturn was generalized across numerous sectors. November factory orders fell by 4.3% YoY, the sixth monthly downturn. December retail sales fell by 2.1% vs. expectations of +1.5% YoY. IFO Expectations in January fell to 94 (below expectations) from 100 in October. Germany might not be in a technical recession, but it looks like a growth recession and that could affect the rest of the Eurozone.

In the U.S., January delivered a strong nonfarm payrolls report. While December was revised down 90,000 to a still-strong 222,000, January at 304,000 outperformed expectations by some 160,000 jobs. Net/net, on the two-month change we recorded a 70,000 increase. The big action was in private payrolls, which were up 296,000 following a 206,000 December increase. Labor force participation outperformed and ticked higher, and the unemployment rate ticked up to 4%. Hourly earnings are a still modest 3.2% YoY. If the economy were not already at full employment, this could be classified as a “Goldilocks” report: strong job growth and stable wages. It’s still good for the economy and markets — just keep an eye peeled for the Federal Reserve coming back onto the playing field at some point.

Please see pages 9‒10 of the Global Perspectives book.

Source: Bloomberg and Voya Investment Management

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