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Market Insight Monthly | December 31, 2019


The U.S. economy wrapped up 2019 with a batch of generally promising data as U.S.-China trade tensions died down.

The Conference Board’s Leading Economic Index (LEI) rose 0.1% year over year in November, its slowest pace of growth since 2009. Even though LEI growth has slowed, the gauge is still positive year over year [Figure 1].

Nonfarm payrolls growth rose to a 10-month high in November, according to the data released in early December. October and September payrolls growth was also revised upwards. The 12-month average payrolls change through October was noticeably above the expansion average [Figure 2].

Consumer inflationary pressures appeared healthy and manageable. The core Consumer Price Index (CPI), which excludes food and energy prices, climbed 2.3% year over year in November, around a cycle high. Wages, which comprise about 70% of business costs, rose 3.1% year over year in November. Still, producer price growth declined. The core Producer Price Index increased 1.5% year over year in November, the slowest pace of growth since September 2016.

Figure 1. Leading Indicators Still Searching for A Bottom

Core personal consumption expenditures (PCE), the Federal Reserve’s (Fed) preferred inflation gauge, increased 1.6% year over year in November. Year-over-year core PCE growth is still below the Fed’s 2% growth target.

U.S. manufacturing data sent conflicting signals. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) hovered around a 10-year low in November. On the other hand, Markit’s U.S. manufacturing PMI, which is constructed differently and tends to be more forward looking, jumped to a seven-month high in November and has remained in expansionary territory.

Underlying data on the U.S. consumer was mixed. The Conference Board’s Consumer Confidence Index rose slightly in December, but retail sales growth slowed in November at the start of the holiday season.

Business spending stalled in November. Orders for nondefense capital goods (excluding aircraft) were unchanged month over month and declined 1.2% year over year.

Another Fed Policy Pivot

On December 11, the Fed announced it would leave rates unchanged, concluding a string of three 25 basis point (0.25%) rate cuts from July to October 2019. Policymakers also released updated rate projections, showing they now expect the fed funds rate to stay unchanged through the end of 2020 before moving higher over the following two years.

Figure 2. Hiring Bounces Back in November

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