It’s safe to say nobody is particularly interested in the incoming data on a day when the only headlines that matter are the ones with the word “virus” in them.
Nevertheless, it’s worth noting that Tuesday brought more evidence to support the contention that business spending in the US remains subdued.
Non-defense capital goods orders ex-aircraft tumbled 0.9% last month, defying expectations for a gain and representing a disappointing slump after gains in the previous two months. The 0.9% decline was the worst since April.
This really is unfortunate. The Trump administration continues to tout the strength of the US consumer, and for once, the White House is correct – the US consumer is strong.
It’s not entirely clear why (Trump’s claims to having ushered in a middle-class “miracle” are dubious at best and the benefits of stock market gains accrue disproportionately to those with the lowest marginal propensity to consume), but I suppose it doesn’t matter. What matters is that the US economy is consumption-dependent and folks are consuming.
And yet, 2019 was defined just as much by lackluster business investment as it was by the robust consumer.
ISM manufacturing remains in contraction (despite IHS Markit’s gauge arguing for a rebound) and survey after survey of CEOs and CFOs suggests that between lingering trade uncertainty and jitters about the US election, C-suite confidence remains in the gutter.
(Deutsche Bank)
That, in turn, is suppressing business spending. Today’s data just underscores the point.
Again, nobody is likely to pay too much attention to this amid the virus news, but remember, the reason stocks are selling off on scary-sounding virus headlines isn’t because anyone fears a zombie apocalypse, but rather because investors are worried that if it keeps spreading, it will derail the nascent bounce in global growth.
With that in mind, we’ll leave you with a brief excerpt from Bloomberg’s Michael Regan, commenting on the possible economic impact of the outbreak:
Governments in the US and Europe may be unlikely to take [the same] drastic steps [as China]. But consumers still can self-quarantine if the number of cases starts moving higher in their countries. And consider what that would mean for restaurants and bars. How willing will you be to check out the new local hot spot if coronavirus cases start popping up in your town? Now consider how bars and restaurants have been among the perennial leaders of the employment boom in the US, as food service and drinking establishments have added more than three million jobs in the past decade: That’s a lot of jobs!
Actually, the data fits together fairly well because although the consumer is strong, capacity utilization is still down from its highs, reducing any justification for investment arising from strength in consumer demand.