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Recent US economic figures point to a pronounced “K-shaped” economy, as the weak jobs market and stubbornly high prices widen the difference between the top and lowest earners. After years of above-trend growth, pay for America’s lowest earners has slowed more sharply than for the highest — erasing much of the progress made during the past decade in closing the gap. https://buff.ly/r60m0KB
China’s trade surplus in goods has surpassed $1tn this year for the first time, according to data released today by the country’s customs administration. The record surplus comes in the wake of a de-escalation in trade tensions between Washington and Beijing, which agreed a year-long truce in October. https://buff.ly/M3VXkPp
History shows that a rapid cycle of easing has often led to “overheating,” especially when twinned with loose fiscal policy. One troubling parallel is the late 1960s, when the Fed did a 180 on a tightening cycle, and took the federal funds rate down around 200 basis points. As fiscal policy also eased — in part thanks to a Vietnam War-related ramp up in defense spending — inflation picked up notably, running at almost 6% by 1969.
Equities markets were up last week, with investors expecting a rate cut at this week’s FOMC meeting due to weak labor market data, despite modestly disappointing, but dated, inflation data. The Treasuries market, however, showed more caution. While yields from the two-year to the 30-year maturities fell, the three-month yield sharply increased 17 basis points (bps) last week, suggesting bond investors are hedging against a more hawkish Fed. Labor market data were mixed last week, with ADP private payrolls decreasing 32,000 in November, suggesting that the private sector labor market is weakening into the holiday season. Initial unemployment claims gave a more positive signal, falling from 220,000 to 191,000 in the week ending November 29; however, a decrease would be expected given the short holiday week. The personal consumption expenditure price index for September increased 0.4% month-over-month and 2.8% year-over-year, an acceleration from the prior month, with large price increases for energy and nondurable goods. Consumer credit grew $9.2 billion in October, below expectations. Consumer credit was generally buoyed by revolving credit, while nonrevolving credit decelerated. Industrial production inched up just 0.1% in September, with business equipment production up, but consumer goods production down. The ISM Manufacturing PMI for November contracted for the ninth straight month, down to 48.2 from 48.7 in October. This decline was driven by decreases in the new orders index and the employment index, suggesting that there may be some stress for manufacturers moving into the new year. The preliminary reading for December of University of Michigan’s consumer sentiment index increased to 53.3 from 51.0 in November. One year forward inflation expectations decreased to 4.1%, the lowest reading since January. @Chmura Economics & Analytics
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