Trade Growth Projected To Slow To 3.7% In 2019

Trade Growth - Decent November PMI Flash, But Growth Is Weakening

Every economic report should be reviewed with the understanding that economic growth is slowing. Good reports are either outliers or possible green shoots for a re-acceleration of GDP growth.

The October Markit PMI flash reading was solid even though other reports such as durable goods orders have signaled growth is rapidly slowing. The Markit PMI was more conservative and more realistic than the ISM reports in the first half of the year when economic growth was stronger.

Interestingly, the Markit PMI has been relatively resilient in the 2nd half, showing us it isn’t always conservative.

The November PMI was solid, but weakened slightly from the October reading. The composite flash reading was 54.4 which was below last month’s report of 54.9. This was a 2 month low.

The service activity index was 54.4 which fell from 54.8 and also hit a 2 month low. The manufacturing PMI was 55.4 which fell from 55.7 and was a 3 month low. Finally, the manufacturing output index was 54.5 which was a 3 month low and fell from 55.2.

Trade Growth - This report is consistent with GDP growth of 2.5%.

That used to be a problematic suggestion, but now it’s in line with estimates. The Atlanta Fed Nowcast expects 2.5% growth and the NY Nowcast expects 2.51% growth.

In the comment section of the report, the chief business economist at IHS Markit stated, “The November survey does raise some warning flags to suggest growth could slow in coming months. In particular, growth of hiring has waned as companies grew somewhat less optimistic about the outlook. Goods exports also appear to also be coming under increasing pressure, often linked to trade wars having dampened demand.”

As you can see, growth is solid. But if the weakening trend continues, there will be a problem. Goods exports will be hurt by the tariffs. The labor market is showing small signs of weakness as evidenced by GM’s layoffs and the spiking jobless claims.

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