- President Trump says phase-two trade agreement may have to wait until after the election
- Chances of USMCA passage in January are dimming
- Payroll growth expected to normalize after GM strike distortions
President Trump says phase-two trade agreement may have to wait until after the election — The markets were relieved on Wednesday after China’s Ministry of Commerce officially announced that top Chinese officials will be traveling to Washington next week to sign the phase-one US/China trade deal. President Trump recently said that the trade deal would be signed on Jan 15 at a ceremony at the White House but there had been no official confirmation from China until Wednesday about that timing.
It was encouraging that all of China’s top officials involved with negotiating the trade deal will attend the signing, adding to the weight of the agreement. The Chinese delegation will be led by Vice Premier Liu and will also include PBOC Governor Yi and Commerce Minister Zhong. The signing ceremony will also include business executives from both the U.S. and China.
The markets have yet to see the 86-page phase-one trade agreement, which will not be made public until the signing ceremony. The markets are waiting to see exactly what China agreed to as far as buying U.S. products. The U.S. claims that China agreed to boost its annual purchases of U.S. ag products to $40 billion in 2020 and 2021, and President Trump has been referring to $50 billion. The U.S. also said that China has agreed to boost its overall purchases of U.S. goods and services to $200 billion. However, China is expected to struggle to buy even $40 billion of U.S. ag products in 2020 since that is far higher than the pre-tariff level of $24 billion in 2017 and the record high of $29 billion in 2013.
President Trump on Wednesday said that phase-two trade talks will begin “right away” but that an agreement might have to wait until after the election because he believes that the U.S. could get a “better deal” in his second term. Mr. Trump’s comment suggests that he may be more relaxed about getting a phase-two deal done and will not be threatening new tariffs or penalties this year to force a deal before the November election. The markets would be pleased if 2020 is a quieter year on the US/China trade front.
Chances of USMCA passage in January are dimming — Bloomberg on Wednesday quoted an unnamed Senate Republican aide as saying that a vote to approve the USMCA is unlikely in the Senate next week because the Senate Foreign Relations Committee will not consider the bill until Thursday. The progress of the USMCA in the Senate slowed substantially after Senate Majority Leader McConnell gave several more Senate committees the opportunity to review the bill before it is referred to the full Senate for a vote.
There is the possibility that the Senate could approve the USMCA in the week of Jan 20-24. However, that will only be possible if House Speaker Pelosi continues to delay the transmission of the articles of impeachment to the Senate. Ms. Pelosi is under increasing pressure to transmit those articles of impeachment and she said on Wednesday that she would do that “soon.” When the Senate receives the articles of impeachment, the Senate’s full attention will then be devoted to the impeachment trial and the USMCA will be put on the back burner.
The markets will be pleased when the Senate approves the USMCA since that could release a burst of new business investment after the new rules for North American trade have been set in stone.
Payroll growth expected to normalize after GM strike distortions — The consensus is for today’s Dec payroll report to show an increase of +160,000 after the distortions seen in Oct (+156,000) and Nov (+266,000) caused by the GM strike. Today’s expected report of +160,000 would be below the 12-month trend average of +184,000 but a weaker report wouldn’t be surprising following Nov’s very strong report of +266,000.
The markets are hoping for improved job figures in early 2020 once the US/China phase-one trade deal is signed next week. If US/Chinese trade relations calm down in 2020, then the U.S. and global manufacturing sector could see a recovery, thus boosting jobs.
Wednesday’s Dec ADP report of +202,000 was substantially stronger than market expectations of +160,000 and was supportive of expectations for today’s payroll report. Also, ADP jobs were revised higher by 57,000 to +124,000 for November and by 30,000 to +151,000 for October. However, the ADP report has recently been substantially weaker than the payroll report, meaning the upward revision in the Oct/Nov ADP reports simply brought the ADP figures closer to the payroll figures of +156,000 in October and +266,000 in November.
The consensus is for today’s Dec unemployment rate to be unchanged from the 50-year low of 3.5% posted in September and November. The FOMC is forecasting that the unemployment rate in 2020 will remain unchanged at 3.5% and will then edge higher to 3.6% in 2021 and +3.7% in 2022. The current unemployment rate of 3.5% is well below the FOMC’s view of a long-term natural unemployment rate of 4.1%, illustrating the remarkable strength of the U.S. labor market.
The tight labor market should keep upward pressure on employee wages and salaries as businesses compete to retain their current employees and hire new employees. However, the consensus is for today’s Dec average hourly wage rate to be unchanged at a tepid +3.1% y/y, remaining within the range of 3.0-3.4% seen over the past year and below last February’s 10-year high of +3.4% y/y.
