Heisenberg Report

Let’s Talk More Data As Trade Deficit Narrows First Time In Six Years, Services PMI Beats

On the heels of the first expansion-territory ISM manufacturing print since July, ISM non-manufacturing came in at 55.5 for January.

That’s better than the 55.1 the market was looking for, and up from a seasonally-adjusted 54.9 in the prior month.

Business activity jumped to 60.9 (from 57.0), the highest since February of 2019.

Drilling down a bit, things look somewhat mixed. Employment fell, as did backlogs and new export orders. “The non-manufacturing sector exhibited continued growth in January”, ISM said, adding that “respondents remain mostly positive about business conditions and the overall economy [and] continue to have difficulty with labor resources”.

The 12-month average is 55.4.

Generally speaking, this is just one more piece of evidence to support the contention that the US economy is resilient and that expansions don’t die of old age.

Someone will find something to nitpick or otherwise be pedantic about, and that’s fine, but the point is, ISM services was another chance for the data to upend buoyant risk sentiment, and it didn’t happen.

Meanwhile, the Commerce department said the US trade deficit shrank for the first time in a half-dozen years in 2019, narrowing nearly 2% to $617 billion, thanks to declining imports of oil and Chinese goods.

America’s merchandise deficit with China plunged nearly 18% last year, after reaching an all-time high in 2018.

The narrowing of the deficit is largely down to oil. “Petroleum imports dropped $31.4 billion to $193.9 billion while exports increased, narrowing the full-year gap in such products to a record-low $13.7 billion”, Bloomberg explains, adding that “the non-petroleum goods deficit was $839.2 billion, a record high”.

Of course, the real irony here is that nobody besides Trump (and Peter Navarro) obsesses over the headline trade balance. And even if you’re inclined to, note that even with the marginal narrowing in 2019, it’s still 20% wider than it was prior to Trump taking office (see the visual above).

Still, Trump will doubtlessly suggest the first narrowing in six years is evidence of policy “success” (or “winning”, if you will), and when it comes to lower oil imports, he touted energy independence in the SOTU speech on Tuesday evening. Considered in conjunction with the fact that the president’s base doesn’t care much for nuance, there’s more than enough to brag about in the full-year data from Commerce.

And speaking of bragging rights, earlier Wednesday, ADP said US firms added 291k jobs last month, the most since May of 2015. Ostensibly, that’s a decent setup for the jobs report on Friday.

Famous last words before a letdown? Maybe.

From the ISM NMI survey



Non-Manufacturing Manufacturing
Index Series Index Jan Series Index Dec Percent Point Change Direction Rate of Change Trend** (Months) Series Index Jan Series Index Dec Percent Point Change
NMI®/ PMI® 55.5 54.9 +0.6 Growing Faster 120 50.9 47.8 +3.1
Business Activity/ Production 60.9 57.0 +3.9 Growing Faster 126 54.3 44.8 +9.5
New Orders 56.2 55.3 +0.9 Growing Faster 126 52.0 47.6 +4.4
Employment 53.1 54.8 -1.7 Growing Slower 71 46.6 45.2 +1.4
Supplier Deliveries 51.7 52.5 -0.8 Slowing Slower 8 52.9 52.2 +0.7
Inventories 46.5 51.0 -4.5 Contracting From Growing 1 48.8 49.2 -0.4
Prices 55.5 59.3 -3.8 Increasing Slower 32 53.3 51.7 +1.6
Backlog of Orders 45.5 47.5 -2.0 Contracting Faster 4 45.7 43.3 +2.4
New Export Orders 50.1 51.0 -0.9 Growing Slower 3 53.3 47.3 +6.0
Imports 55.1 48.0 +7.1 Growing From Contracting 1 51.3 48.8 +2.5
Inventory Sentiment 54.9 60.0 -5.1 Too High Slower 271 N/A N/A N/A
Customers’ Inventories N/A N/A N/A N/A N/A N/A 43.8 41.1 +2.7
Overall Economy Growing Faster 126
Non-Manufacturing Sector Growing Faster 120