Friday, February 21, 2020
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The U.S. economy continues to impress
On Thursday, we got two more strong pieces of economic data.
Highlighting the proceedings was the latest activity reading from the Philadelphia Federal Reserve, which registered its strongest reading relative to expectations since 1998.
Bespoke Investment Group also notes that the actual level of the index — which came in at 36.7 on Thursday — is the best reading since February 2017 and one of the best readings for the report over the last couple decades.
Oxford Economics said Thursday the forward-looking component of this report suggests further improvement in the months ahead. In the Philly Fed’s report, 56% of firms expect increases in business activity over the next six months; just 10% expect declines.
The weekly reading on initial jobless claims released Thursday showed there were just 210,000 new filings for unemployment insurance last week. The four-week average of initial jobless claims also feel last week to 209,000, its sixth decline in the last seven week.
As a result of this latest round of data, JPMorgan’s model tracking the risk of a recession beginning within 12 months fell to a 15-month low.
The firm’s data now indicates there is now less than a one-in-three chance the economy slides into a downturn within a year. This measure has declined consistently in 2020.
The yield curve, of course, is still indicating a somewhat elevated recession risk, as the spread between the 2-year and 10-year Treasury sits at just 13 basis points. The inversion of the 2-year/10-year spread in August was the apex of recessionary fears in 2019.
But following a stronger-than-expected manufacturing reading from the New York Fed earlier this week, Thursday’s economic data continues to show the anticipated upturn in the U.S. economy remains intact.
“We think that the shutdown of 737 MAX production and issues with the COVID-19 virus will be temporary drags on the manufacturing sector early this year,” said JPMorgan economist Daniel Silver in a note on Thursday.
“But it is also possible that activity in the sector has firmed lately due to the recent easing in trade tensions between the US and China. While there is only limited February data available to date, so far it looks like the net of these issues along with a range of other factors that could be influencing the sector is positive.”
Silver adds that he’ll be keeping a close eye on IHS Markit’s preliminary reports on economic activity in February, the first national readings we’ll get for the month, which is due out at 9:45 a.m. ET.
What to watch today
9:45 a.m. ET: Markit U.S. manufacturing purchasing managers’ index, February preliminary (51.5 expected, 51.9 in January)
9:45 a.m. ET: Markit U.S. services PMI, February preliminary (53.4 expected, 53.4 in January)
10:00 a.m. ET: Existing home sales, January (5.44 million expected, 5.54 million in December)
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