Payroll employment rises by 266,000 in November; unemployment rate changes little at 3.5%

Total nonfarm payroll employment rose by 266,000 in November. The change in total nonfarm payroll employment for September was revised up by 13,000 from +180,000 to +193,000, and the change for October was revised up by 28,000 from +128,000 of +156,000. With these revisions, employment gains in September and October combined were 41,000 more than previously reported.

Job growth has averaged 180,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018. In November, notable job gains occurred in health care and in professional and technical services. Employment also increased in manufacturing, reflecting the return of workers from a strike. (…)

Manufacturing employment rose by 54,000 in November, following a decline of 43,000 in the prior
month. Within manufacturing, employment in motor vehicles and parts was up by 41,000 in November, reflecting the return of workers who were on strike in October.

In November, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $28.29. Over the last 12 months, average hourly earnings have increased by 3.1 percent. In November, average hourly earnings of private-sector production and nonsupervisory employees rose by 7 cents to $23.83. (+3.7%)

China to Waive Trade War Tariffs for Some U.S. Soy, Pork Purchases

China is in the process of waiving retaliatory tariffs on imports of U.S. pork and soy by domestic companies, a procedural step that may also signal a broader trade agreement with the U.S. is drawing closer.

China’s finance ministry said it has started to process the applications after the firms purchased a certain amount of U.S. goods based on its needs. The ministry is working to waive the tariffs resulting from the trade war on those goods, it said in a statement on Friday. (…)

Still, unless new quotas for waivers are issued, U.S. exporters may not see a huge inflow into China. Buyers have used up almost all of its waivers to purchase American soybeans, people familiar with the matter told Bloomberg earlier this week.

China said same in early September and again in October…The South China Morning Post adds:

Since the start of the trade war, China has increased its purchases of soybeans from Argentina and Brazil in a bid to reduce its reliance on the US. Since 2017, America’s sales of soybeans to China have fallen by 90 per cent.

Brazil’s soybean harvest is expected to be 27 per cent larger than America’s this year, according to agricultural data provider Gro Intelligence.

In September, China opened its market to soymeal livestock feed from Argentina for the first time, in what exporters in Buenos Aires described as a historic agreement.

The New China Scare Why America Shouldn’t Panic About Its Latest Challenger

Good piece from Fareed Zakaria in Foreign Affairs. His conclusion:

(…) The new consensus on China is rooted in the fear that the country might at some point take over the globe. But there is reason to have faith in American power and purpose. Neither the Soviet Union nor Japan managed to take over the world, despite similar fears about their rise. China is rising but faces a series of internal challenges, from demographic decline to mountains of debt. It has changed before and will be forced to change again if the combined forces of integration and deterrence continue to press on it. Beijing’s elites know that their country has prospered in a stable, open world. They do not want to destroy that world. And despite a decade of political stagnation on the mainland, the connection between the rise of a middle class and demands for greater political openness is real, as is apparent in two Chinese societies watched closely by Beijing—Hong Kong and Taiwan.

Some American observers talk of China’s long view, of its patient, secret plan to dominate the world, consistently executed since 1949, if not before. The scholar and former U.S. Defense Department official Michael Pillsbury has called it China’s “hundred-year marathon,” in a book often praised by the Trump administration. But a more accurate picture is that of a country that has lurched fitfully from a tight alliance with the Soviet Union to the Sino-Soviet split, from the Great Leap Forward to the Cultural Revolution to a capitalist success story, and from deep hostility toward the West to close ties with the United States and back to a flirtation with hostility. If this is a marathon, it has taken some strange twists and turns, many of which could have ended it altogether.

Meanwhile, since 1949, the United States has patiently put in place structures and policies to create a more stable, open, and integrated world; has helped countries enter that world; and has deterred those that sought to destroy it—all with astonishing success. Washington has been the opposite of vacillating or overly focused on the short term. In 2019, U.S. troops are still on the banks of the Rhine, they are still safeguarding Seoul, and they are still in Okinawa.

China presents a new and large challenge. But if Washington can keep its cool and patiently continue to pursue a policy of engagement plus deterrence, forcing China to adjust while itself adjusting to make space for it, some scholar decades from now might write about the United States’ not-so-secret plan to expand the zone of peace, prosperity, openness, and decent governance across the globe—a marathon strategy that worked.

U.S. Trade Deficit Shrinks as Imports Fall Sharply

The U.S. trade deficit in goods and services declined to $47.20 billion during October from $51.10 billion in September, revised from $52.45 billion. It was the smallest deficit since May 2018. (…) Exports slipped 0.2% (-1.4% y/y) after a 0.9% decline while imports weakened 1.7% (-4.7% y/y) after a 1.6% drop.

The trade deficit in goods fell to $$68.02 billion in October from $71.7 billion in September. It also was the smallest deficit since last May.

Imports of goods declined 2.2% (-6.7% y/y) as nonpetroleum imports fell 2.4% (-4.9% y/y). Automobile & parts imports weakened 5.8% (-8.6% y/y). Nonauto consumer goods imports dropped 4.4% (-7.4% y/y) (…)

Exports of goods fell 0.5% (-3.6% y/y), led by a 4.3% drop (-6.5% y/y) in nonauto consumer goods imports. (…)

The surplus on trade in services rose to $20.8 billion, but remained below the March 2018 peak of $22.8 billion. (…)

The trade deficit with China narrowed to $27.8 billion (SA) billion in October from $38.2 billion twelve months earlier. Exports to China slumped 17.0% (-0.7% y/y). Imports fell 4.8% (-22.9% y/y), the fifth consecutive monthly decline. The trade deficit with the European Union shrank to $14.2 billion, the least since February. Exports increased 1.6% (7.5% y/y) while imports fell 2.0% (+3.8% y/y). The trade deficit with Japan narrowed sharply to $4.5 billion, the smallest since June 2011. Exports rose 9.6% (-0.5% y/y) while imports declined 7.4% (-9.6% y/y).

December D.C. Deadlines

Policymakers face a string of deadlines over the next few weeks. On the trade policy front, the White House faces a December 15 deadline, when tariffs on over $150bn in imports are scheduled to take effect unless the White House postpones or cancels them. While USMCA does not have a deadline for ratification, passage would become less likely if negotiations stretched far into the 2020 election year. On the fiscal policy front, Congress faces a December 20 deadline to pass an appropriations measure in order to prevent a government shutdown. Additionally, several tax provisions worth approximately 0.1% of GDP are set to expire on December 31, which if not extended would result in modest additional fiscal drag in 2020 on top of the -0.2pp we already expect (relative to trend). (…)

While we continue to assume that each of these events occurs, the crowded calendar alongside intensifying political tensions make timely resolution increasingly difficult. (Goldman Sachs)

German industry hit by biggest downturn since 2009 Output falls 5.3% in year to October, indicating sector likely to weigh on eurozone growth

• Drop in German industrial orders dashes hopes of rebound
• Global car market shrinking at fastest rate since financial crisis

Looking for green shoots in Markit’s various PMI surveys:

The Germany Composite Output Index ticked up for the second
month running in November to 49.4, from 48.9 in October.
Nevertheless, the latest reading was still one of the lowest over
the past seven years. The result reflected marginally faster
service sector activity growth and a slower – though still solid –
decrease in manufacturing production.

Inflows of new business fell for the fifth month running in
November. That said, rates of decline eased across both
monitored sectors. This was also the case for new export
business, which showed the smallest decline for ten months.

The European automobiles & auto parts sector remained
in a downturn in November, with its output index ranked
seventeenth of 19 detailed sectors. That said, the rate
of contraction signalled was the slowest for a year.

Moreover, with the decline in new orders easing further and
inventories of finished goods continuing to fall sharply, the
ratio of these two indices rose again, pointing to a future
recovery in the level of the output index back towards
growth territory. Less positively, employment in the sector
continued to fall at one of the sharpest rates since 2009.

A Growing Share of S&P 500 Companies’ Earnings Are Contracting The percentage of S&P 500 companies posting a year-over-year decline in earnings is at highest level since 2009

(…) Morgan Stanley’s MS 0.47% wealth-management unit found in an analysis of earnings that more than a third of S&P 500 companies have posted a year-over-year decline in earnings in 2019. The last times the share of companies posting contracting earnings was that high: 2009, 2008 and 2002, all periods when the broader economy, plus the stock market, were in decline. (…)

It also happens that one third (36%) of S&P 500 sectors are in earnings contraction:

Among S&P 600 sectors, 5/11 are contracting in Q3 and 7/11 are expected to post negative YoY growth in Q4. Mid caps: 7/11 in Q3 and 8/11e in Q4.

Number of U.S. IPOs and U.S. IPOs with Negative Earnings

Finance Executives Are Less Optimistic About Revenue Growth, Expansion Although profit and revenue are still expected to rise, the rate of growth is expected to slow, survey shows

Executives surveyed in the fourth quarter expect profit and revenue growth of 2.7% and 3.4%, respectively, over the next 12 months at their companies—the lowest levels since 2016, according to a quarterly outlook survey released Thursday by the Association of International Certified Professional Accountants.

(…) Fifty-nine percent of respondents are optimistic about expansion plans, the lowest level since the middle of 2016. The percentage is down from 67% in the fourth quarter last year, according to the survey.

(…) Optimism among respondents at businesses generating less than $10 million in annual revenue fell to 52% from 64% a year earlier. Optimism among companies with $10 million to $100 million in revenue dropped to 59% from 70% during the same year-ago quarter. Executives from companies of those two sizes constitute about two-thirds of the survey’s 907 respondents, who were mostly based in the U.S. (…)

Companies with at least $1 billion in revenue also grew less optimistic about expansion, dropping to 68% from 71% a year earlier, the survey showed. (…)

Half of respondents were optimistic [on the U.S. economy], up from 42% the previous quarter, which was the lowest it had been since the third quarter of 2016, according to the survey. (…)