Jobs Add Fuel To Expansion

Markets ended the week on a high note as Friday’s blockbuster jobs report helped push the S&P 500 into the green for the week. It was a significant turnaround for the index which had faltered earlier in the week on the Trump White House’s announcement of more tariffs on global trading partners. Brazil and Argentina were added to the list of countries to suffer from tariffs as the administration sought to impose steel tariffs on the two in response to suspected currency manipulation. France was also put on notice that they could see tariffs placed on their goods in reaction to a new French digital services tax on U.S. tech firms. Also weighing on markets this week were concerns that a delay in a U.S.-China Phase 1 trade deal would result in new China tariffs on December 15th. The totality of the potential new tariffs risks further sapping demand for U.S. manufacturing and services which reported weaker month-over-month figures this week. All these concerns were brushed aside on Friday once the jobs number blew past expectations, signaling business confidence and the economic expansion remains intact. For the week, the S&P 500 added 0.16%.

Unemployment Hits 50 Year Low

This week’s monster jobs report snuffed doubts over whether the U.S. economy was still expanding. In November, businesses added 266,000 jobs. That crushed estimates for 187,000 new jobs. The unemployment rate ticked down to 3.50%, matching its lowest level since 1969. Gains were broad-based with manufacturing overcoming the drag from the trade wars. The sector added 54,000 to company payrolls. The figure was skewed, however, by the fact that the resolution of the GM strike brought 41,300 jobs back online. Strong job gains were also seen in education and health services +74,000, professional and business services +38,000, and transportation and warehousing +15,500. Wage growth remained strong, rising 3.10% from a year earlier. Overall, it was a very solid jobs and wages report.

Service Sector Holds While Manufacturing Seeks Bottom

The manufacturing sector remained in recession in November as the Institute for Supply Management (ISM) reported the ISM Manufacturing index hit 48.1. That was down slightly from 48.3 in October. November’s reading remained below 50 which is the dividing line between recession and expansion. The manufacturing sector has been mired in recession over the last four months as the trade war has continued to drag on. The ISM Services Index, which provides a better gauge of the health of the U.S. economy, fared a bit better in November. Although down from 54.7 in October, November’s 53.9 was still respectable. Bright spots in the services sector included new orders and employment, both of which rose during the month and signaled that the U.S. services sector has been able to weather the impact from the broader global slowdown. A Phase 1 U.S.-China trade deal, tentatively expected on December 15th, would go a long way to helping the beleaguered manufacturing sector stabilize and would create faster activity which would help the services sector as well.

Markets had a rocky start to December, but they were quick to recover once the jobs report reminded investors of the underlying resilience of U.S. businesses. Hopes for continued stock gains for the remainder of the year were reinforced by improvements seen elsewhere in global economic growth indicators. China reported that its manufacturing sector rose back into expansion territory in November, while its services sector also posted positive numbers. In the Eurozone, the economic bloc managed to sustain its expansion in its domestic services sector. It was one of those weeks that started negative and felt at times as if sentiment wanted to turn sustainably so, but the blockbuster jobs and wages numbers were well timed, managing to restore investors’ faith.

The Week Ahead