Monthly economic update JANUARY 2020

DOMESTIC ECONOMIC HEALTH 
 

After a year-and-a-half of tariffs and stern talk, the world’s two largest economies reached a preliminary trade pact, which may lead to a larger one in 2020. On December 13, U.S. and Chinese officials stated that a deal had been reached. U.S. Trade Representative Robert Lighthizer told reporters that this phase-one deal would be signed in Washington in January, and President Donald Trump noted that negotiations toward the next phase would start “immediately.” In the big picture, the phase-one deal calls for China to buy more U.S. crops and provide better protection for U.S. intellectual property, in exchange for reduction and cancellation of some tariffs on Chinese products. As part of the agreement, the U.S. halved an existing 15% import tax on $120 billion of Chinese goods and canceled new tariffs scheduled for December 15. The 25% tariffs that both nations implemented in spring 2019 may soon be reduced or removed.2

 

Federal Reserve policymakers decided to hold the benchmark interest rate steady last month; the vote was unanimous. According to the latest Fed dot-plot (a chart the central bank uses to convey its benchmark interest rate outlook), 13 of 17 Federal Open Market Committee officials think that the FOMC will leave short-term interest rates alone for all of 2020.3

 

November hiring numbers were impressive, even given the influence of striking General Motors employees returning to their jobs after a fall labor dispute. Nonfarm payrolls swelled with 266,000 net new jobs in the eleventh month of the year, according to the Department of Labor; wages were up 3.1% year-over-year. Both the headline jobless rate and the broader U-6 rate, measuring unemployment and underemployment, ticked down 0.1% in November, to a respective 3.5% and 6.9%.4

 

Retail sales were up 3.4% this holiday season compared to last, according to Mastercard’s annual November 1-December 24 snapshot. Online retailers saw a year-over-year gain of 18.8%. In the month of November, overall retail sales advanced 0.2% by the estimation of the Census Bureau, leaving the 12-month gain at 3.5%. The Department of Commerce said consumer spending rose 0.4% in November; consumer incomes advanced 0.5%.4,5

 

The two closely watched consumer confidence benchmarks went different ways in December. Ascending from a final November mark of 96.8, the University of Michigan’s Consumer Sentiment Index finished December at 99.3. The Conference Board’s index came in at 126.5, down from 126.8 a month before.4,6

 

Activity in America’s factory sector had slowed in November, a bit more than it did in October. That was the conclusion economists drew from the latest manufacturing Purchasing Managers Index from the Institute for Supply Management, which had a November reading of 48.1, down 0.2 points from a month earlier. ISM’s November Non-Manufacturing PMI came in at 53.9, as opposed to 54.7 in October; any number above 50 indicates sector growth.4

 

At mid-month, the University of Michigan polled households to determine what they thought the inflation rate would be over the next five years. The consumer consensus was 2.3%, and that was higher than the 2.1% headline inflation shown in the federal government’s latest Consumer Price Index (November). That 2.3% estimate did precisely match annualized core inflation through November (the core CPI factors out volatile food and energy costs).4

 

In late December, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act into law. The SECURE Act raises the age for Required Minimum Distributions (RMDs) from traditional retirement accounts from 70½ to 72 (this new rule applies only to individuals who turn 70½ in 2020 or later). It also allows seniors with earned income to continue contributing to traditional retirement accounts after age 70½.7

CITATIONS:

2 - cnbc.com/2019/12/13/china-says-it-has-agreed-to-us-trade-deal-text-indicates-next-step-is-signing.html [12/13/19]

3 - cnn.com/2019/12/11/economy/federal-reserve-interest-rates-december/index.html [12/11/19]

4 - investing.com/economic-calendar [12/31/19]

5 - forbes.com/sites/pamdanziger/2019/12/26/holiday-retail-sales-advance-34-but-the-grinch-stole-physical-retailers-christmas [12/26/19]

6 - bit.ly/2tneguU [12/31/19]

7 - inquirer.com/news/secure-act-retirement-2020-annuities-rmd-529-plan-taxes-20191223.html [12/23/19]

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