Global Daily – US domestic demand is weakening

by: Bill Diviney

US Macro: Trade and inventory data point to softer domestic demand – The US trade deficit unexpectedly narrowed in October, but it was a ‘bad’ narrowing, i.e. driven by weak imports rather than strong exports. Indeed, both imports and exports contracted for a second consecutive month, with imports falling -6.9% yoy and exports falling -3.7% yoy to the weakest levels in nearly two years. The obvious culprit is the trade war, and much of the weakness has indeed been in bilateral US-China trade, with the share of imports coming from China falling sharply over the past year to a 6 year low (as of the September data; we do not yet have the country breakdown for October). However, imports have been weak more broadly, as have other indicators of demand, with retail sales ex-autos also soft in October. Today, we had wholesale inventory data, and while growing in line with consensus at 0.2% mom in October, the September contraction was revised to -0.7% from -0.4% previously, taking annual growth to a near two year low of 3.9% – down sharply from the recent peak in growth of 7.7% back in April. All told, the data support our view that growth in the US will slow further in the next few months, as the weakness in the industrial sector and slower jobs growth passes through to domestic demand. We continue to look for growth of 1.3% in 2020, down sharply from our expectation of 2.2% in 2019, and well below the Bloomberg consensus of 1.8%. (Bill Diviney)