When we set our expectations for 2020, one of the key points we drove home was that markets would be noisy, but underneath it all we expected a fundamentally sound economy to continue forging ahead. That’s, in part, why we still expect global growth to continue this year. And although the coronavirus remains a bit of a wild card, key economic data from around the world continue to provide support for our thesis. Some recent examples: We’ve seen a upward swing in manufacturing activity around the world and employment data here in the U.S. is strong.

Big picture: Despite some surprises this year, the fundamentals continue to provide a firm foundation for growth. What’s more, central banks around the world are poised to intervene to soften the blow if the economy indeed hits a temporary air pocket.

As we look to the week ahead, we’ll get a read on how small business owners closed 2019 and get the latest numbers on inflation (which the Federal Reserve wants a bit higher). Retail sales, testimony from the Fed and consumer sentiment are also on tap this week.


Data Suggests a Rebound in Key Sector: The broad Eurozone manufacturing PMI, though technically still in contraction, jumped 1.6 points to 47.9, its highest level since April 2019. Although the only countries where manufacturing is technically expanding are Greece, Ireland and France, data from the Eurozone indicate the tides are shifting after what was a downbeat 2019. Outside of the Eurozone, India’s manufacturing sector is expanding at the fastest pace, while China’s has eased a bit.

Back home, the U.S. ISM Manufacturing Index jumped 3.1 points to 50.9, exceeding expectations and returning to an expansionary footing. Factory orders for December also beat consensus estimates. If we add it all up, the global manufacturing PMI sits at 50.4 and has marked three straight months above that key expansion level of 50.

Altogether, these are tentative signs of stabilization in the sector, but short-term uncertainty remains. Economic disruptions from the coronavirus are likely to impact data next month, and the halt in Boeing production could also be a drag. Still, we think these are temporary, short-term headwinds. Keep in mind, outside of manufacturing, data from the services side of the global economy remain strong and firmly in expansion territory.

Strength on the Employment Front: Key employment metrics for January show ongoing strength, which bodes well for consumers and the overall economy this year. Employers added 225,000 jobs in the month, exceeding expectations. The unemployment rate is still hovering at a historically low 3.6 percent, and average hourly earnings for workers inched up by 7 cents to $28.44. Over the past 12 months, wages have risen 3.1 percent while inflation has hovered around 1.8 percent — in other words, workers are experiencing real wage gains.

One likely reason for the accelerated hiring is that businesses have more clarity on trade following the phase-one deal struck between the U.S. and China several weeks ago. A warmer January may have also provided a boost for jobs in construction, hospitality and a few other industries dependent on favorable weather conditions.

A Quick Coronavirus Update: In its semiannual report to Congress, the Federal Reserve on Friday said the U.S. economy remains on solid footing, but the coronavirus “could lead to disruptions in China that spill over to the rest of the global economy.” A day prior, Fed Vice Chairman for Bank Supervision Randal Quarles said it’s “too early to say what the full economic effect of the outbreak will be.” The virus, as of Sunday evening, has now infected nearly 40,000 people and claimed more than 900 lives (more than 3,200 people have fully recovered). Several drug makers are now fast-tracking and testing potential vaccine candidates.

In its comments to Congress, the Fed said it has raised the bar for additional rate cuts. However, a surprise risk could prompt them to lower rates ahead of schedule if needed. In other words, the coronavirus may cause short-term disruptions, but central banks around the world are armed and ready to help soften the potential economic fallout.


The View from Main Street: Small business owner optimism has been strong for quite some time, and the trend is expected to continue this week when we get data from December. While the headline number is important, the NFIB small-business index also includes plenty of anecdotal observations that provide good insights about the economy — sort of putting the economy under a microscope.

Prices on the Rise? A monthly gauge of consumer prices is due this week, which offers a comprehensive look at the prices we pay for a wide variety of goods. More broadly, it shows where inflation is headed and how quickly. And, although it isn’t the official measure used by the Fed, a modest rise in prices would be welcomed by the central bank. We’ll be digging through that report for other anecdotes and observations.

Related: Retailers will also report sales for the for January. Early forecasts are calling for a 0.3 percent rise.

A Few Others: On Tuesday, Fed Chairman Jerome Powell will provide testimony before Congress, though he’ll likely stick to the key themes he’s outlined already: The Fed is comfortable with its policy, inflation could be higher, and officials are monitoring emerging pockets of uncertainty. Lastly, stay tuned for an update on industrial production on Friday. The results likely won’t knock it out of the park, but evidence of stabilization will certainly be constructive.

Commentary is written to give you an overview of recent market and economic conditions, but it is only our opinion at a point in time and shouldn’t be used as a source to make investment decisions or to try to predict future market performance. To learn more, click here.

There are a number of risks with investing in the market; if you want to learn more about them and other investment related terminology and disclosures click here.

Recommended Reading