December 23, 2019
U.S. real gross domestic product (GDP) growth held roughly steady at 2.1 percent annualized in the third quarter versus 2.0 percent in the second quarter. The data showed a moderation in government spending and personal consumption expenditure growth, which came in at 3.1 percent annualized after an unsustainably strong 4.6 percent reading in the prior quarter. However, this was largely offset by a smaller drag from inventories and net exports.
Despite the pullback in consumer spending growth, the U.S. household sector has remained a bright spot as clouds have gathered over the global economy. The manufacturing sector has borne the brunt of the escalation in U.S.-China tariffs, while also contending with headwinds in the form of U.S. dollar appreciation and weakness in foreign demand. Beyond the U.S., the trade war and China’s ongoing financial deleveraging have detracted from global trade volumes, which are contracting on a year-over-year basis for the first time since 2009. The global trade recession has weighed on GDP growth in economies that are particularly trade- and investment-oriented. Real GDP growth in China slowed to 6.0 percent year over year in the third quarter, the slowest pace in several decades, while German GDP grew by just 0.3 percent annualized in the third quarter after contracting by 1.0 percent in the prior quarter.
The U.S.-China trade war has detracted from global trade volumes, which contracted on a year-over-year basis in the second quarter for the first time since 2009.
Source: Guggenheim Investments, Haver Analytics, Federal Reserve Bank of Dallas, Netherlands Bureau for Economic Policy Analysis. Trade data as of 6.30.2019; GDP data as of 9.30.2019. Shaded areas represent recession.
The good news is that the manufacturing sector represents only 11.0 percent of U.S. GDP and 8.4 percent of nonfarm payrolls. We see encouraging signs of an upturn in goods production, which a tentative U.S.-China trade truce should support. Meanwhile, growth in the much larger services sector has moderated, with real personal spending on services having softened over the past year. Also noteworthy to us was the decline in the employment diffusion index of the IHS Markit purchasing managers index (PMI) for services, which fell to 47.5 in October before rebounding in November and December. Global PMIs also showed a sequential improvement in labor market conditions in November.
Global PMIs show softening labor market conditions across services as well as manufacturing.
Source: Guggenheim Investments, Haver Analytics, JP Morgan/IHS Markit. Data as of 11.30.2019. Note: Readings above 50 denote expansion.
Fiscal policy is estimated to have boosted U.S. real GDP growth by about 0.6 percentage point in 2019. This substantial fiscal support should fade in 2020, resulting in no contribution to growth (a -0.6 percentage point shift in the growth impulse). We expect the Federal Reserve (Fed) to remain on hold in the near term, with monetary policymakers having indicated that the bar is high for further rate changes. This message has since been reinforced by the Fed’s senior leadership, who have noted that “monetary policy is in a good place.” The recent rally in stocks and bear steepening of the yield curve suggests that markets agree.
—Brian Smedley, Head of Macroeconomic and Investment Research; Maria Giraldo, CFA, Managing Director; Matt Bush, CFA, CBE, Director
This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. It contains opinions of the authors but not necessarily those of Guggenheim Partners or its subsidiaries. The authors’ opinions are subject to change without notice. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is no guarantee of future results.
Investing involves risk. In general, the value of fixed-income securities fall when interest rates rise. High-yield securities present more liquidity and credit risk than investment grade bonds and may be subject to greater volatility. Asset-backed securities, including mortgage-backed securities, may have structures that make their reaction to interest rates and other factors difficult to predict, making their prices volatile and they are subject to liquidity risk. Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit risk, interest rate risk, liquidity risk and prepayment risk. Guggenheim Investments represents the following affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited, and Guggenheim Partners India Management.
©2019, Guggenheim Partners, LLC. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC.
Credit spreads still have room to tighten, but default risk remains elevated in certain sectors.
The relative calm we feel in the markets right now isn’t the end of the storm, it is just the eye.
Cooperation and understanding between China and United States is vital as global economic and environmental challenges mount.
Brian Smedley, Head of Macroeconomic and Investment Research, and Portfolio Manager Steve Brown share their outlook for the third quarter 2020.
Scott Minerd, Chairman of Investments and Global CIO, discussed his outlook for markets and the economy with CNBC’s Brian Sullivan during the Milken Institute 2020 Global Conference.
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2020 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.