Daily Commentary BY THE CURVE TEAM –

Domestic Demand Remains Weak

10th of January, 2020

Domestic data flows so far this year continues to suggest that domestic demand remained subdued going into the end of 2019.

Further data released over the last 24 hours has confirmed that local economic activity remains subdued as 2019 came to a close. There was a bounce in the trade balance, rising from a downwardly revised $4.1bln ($4.5bln previously) to $5.8bln.

Hidden in the details of the rebound in the rising trade balance was movements in both imports and exports. While exports received a boost from a rebound in Iron Ore heading overseas, imports continued to paint a weak picture of domestic demand. There were falls across all import sub categories with a 23% fall in motor vehicle imports a standout. The 7% fall in consumption goods was also a worry.

There were also further signs that consumers are remaining frugal with the services PMI for December falling back below the key 50 level that distinguishes between rising or falling activity. Sales, new orders and selling prices were all sub 50 for December with one saving grace the fact that the employment index remained positive at 54.2.

We will get more insights into the state of the consumer when retails sales data for November is released later today. The data is expected to paint a slightly more positive picture, aided by November sales events such as black Friday and cyber Monday sales. The real litmus test for the consumer will come when we get the December sales data next month.

Later tonight in the US we will get the key nonfarm payrolls report.

David Flanagan

Director - Interest Rate Markets