U.S.: Trough in growth is still to come – ABN AMRO

Bill Diviney, the senior economist at ABN AMRO, notes that Fed rate cut expectations declined further last Friday, with pricing for a January cut falling from around 50% to just 30% following the better-than-expected nonfarm payrolls print.

• “Alongside the upside surprise in the headline print (a gain of 128k vs expectations of 85k, despite the GM strike-related distortions), there were net positive revisions to the past two months of +95k – pointing to a rather stronger labour market than would be expected considering how subdued business confidence is. However, as if to remind markets of the persistent weakness in the manufacturing sector, September factory orders (excluding lumpy aircraft items) showed a contraction of -0.1% mom, with August revised down to -0.2% from an earlier flat reading.
• The forward-looking indicators for employment also remain weak, with the ISM manufacturing employment index still in contraction territory at 47.7 in October, with services not much better at 50.4 as of September (sharply down from the average of 56.0 in H1 2019). Indeed, we expect payrolls growth to continue softening in the coming months.
• With private consumption growing at well-above trend rates in Q2 (+4.6%) and Q3 (2.9%), we, therefore, expect payback in the fourth quarter, with overall GDP growth potentially dipping below 1.0% annualiяed. Such a weak outturn would come as a reality check to markets that have grown accustomed to a resilient US economy, and could even raise fears of a recession once again.”