Introduction

The stalling in global trade has led to a stalling in global goods production: less goods to export, less goods need to be produced. As we'll see, industrial production data across the global economy are sinking below the waterline between growth and no growth, in turn making 2019 a year of slower growth overall, nation by nation. Whether slowing in goods production, and its dampening effects on factory employment, is beginning to pull down the consumer is a question central to policy makers and which we'll also touch on in this week's rundown. We begin with central bank policy where gradual on-and-off rate cuts are the policy story of 2019.

The economy

Monetary policy

Contrary to expectations for another rate cut, the Reserve Bank of New Zealand left its policy rate, the overnight cash rate (OCR), unchanged at 1.00 percent. The OCR was last cut by 50 basis points at the RBNZ's meeting in August and by 25 basis points in May. Economic growth has continued to slow, according to the bank's policy statement, and will likely remain subdued for the rest of this year. Officials, however, expect conditions to strengthen in 2020 in response to their recent cuts in policy rates as well as currency weakness and also increases in government spending. Although headline inflation fell from 1.7 percent in the second quarter to 1.5 percent in the third quarter, officials remain confident it will, in line with improvement in general conditions, increase gradually to the mid-point of their 1.0 percent to 3.0 percent target range.

RBNZ officials considered cutting its policy rate by another 25 basis points at November's meeting but concluded that developments since the last rate cut did not warrant a change to their "already stimulatory" settings. Nevertheless, officials repeated their earlier assessment that rates will need to remain at low levels for a "prolonged period" in order to meet their inflation and employment objectives and also repeated that they are prepared to ease policy further if required.

Gross domestic product

Before turning to the latest industrial production and retail sales data, let's first note some very positive news out of Germany where manufacturing weakness hasn't yet torpedoed the consumer. In contrast to market expectations, Germany avoided recession in the third quarter, though not by much. Real GDP expanded a provisional 0.1 percent on the quarter following 0.2 percent contraction in the second quarter. Annual workday adjusted growth, as tracked in the accompanying graph, picked up from 0.3 percent to 0.5 percent. Details in the first estimate are limited but stronger household consumption, along with increases in government and construction spending, were cited in the report. Investment in machinery and equipment, however, was down. Despite beating the consensus, Germany's economy was clearly still sluggish last quarter. In fact, total output has risen just a meager 0.8 percent since the start of 2018. And given the importance of the household sector to third quarter growth, ongoing weakness in consumer confidence may not bode well for fourth quarter GDP.

Industrial production

The US and China are at the center of global trade frictions, the effects of which have been showing in Chinese data all year. Down sharply from 5.8 percent in September, Chinese industrial production advanced 4.7 percent on the year in October and well below the consensus forecast for 5.4 percent. Growth in manufacturing volumes slowed to 4.6 percent on the year after rising 5.6 percent previously, with weaker growth reported in the output of textiles, chemicals, steel, electrical machinery, general equipment, and communication equipment. How much of this is trade related? Probably a lot. Mining output also weakened in October, to 3.9 percent annual growth from 8.1 percent.

Eurozone industrial production, starting at a lower rate of growth than China, has actually been below the waterline since late last year. Annual growth in September was again negative as seen in the graph, though at minus 1.7 percent it was at least an improvement from minus 2.8 percent in August. On a monthly basis, production rose just 0.1 percent, while on a quarterly basis, production contracted 0.9 percent after a 0.6 percent fall in the second quarter. Production of capital goods did rise in September though production of consumer durables was down. By country, monthly production was lower in three of the big four member states: Germany (minus 1.0 percent), Italy (minus 0.4 percent) and Spain (minus 0.9 percent) all saw fresh falls leaving France (0.3 percent) as the only country making any progress. The European Central Bank has been carefully watching the health of manufacturing for some time and the latest data, though an improvement, will probably do little to allay their concerns.

The general slump evident in the data from China and the Eurozone is also evident in industrial production from the US where a special factor has pulled the slope sharply lower. The now resolved GM strike (settled late last month) is largely responsible for two straight monthly contractions, of minus 0.8 percent in October and minus 0.3 percent in September. The yearly rate, as tracked in the graph, has dipped into the negative column the last two months for the first time in three years, at minus 1.1 percent in October and minus 0.1 percent in September. Motor vehicle production, on a monthly basis, plunged 7.1 percent in October following a 5.5 percent drop in September and even a 1.2 percent decline in August which was before the strike took effect. October's drop in vehicles pulled down overall manufacturing output where volumes fell 0.6 percent on top of September's 0.5 percent decline. And the bad news isn't completely limited to vehicles. Production of business equipment fell a monthly 0.6 percent in October following a 1.1 percent drop in September in results that won't cool concerns at the Federal Reserve over weakness in business investment. Outside manufacturing, mining continues to stagger, down 0.7 percent following a 0.8 percent drop in September. On the year, mining, where production growth had been in the double digits, is up only 2.7 percent in the latest data. With the GM strike now over, vehicle production will presumably reverse prior declines and post outsized gains in the coming months. But the question will be how much strength or weakness will there be outside of vehicles.

The trend in China, and the Eurozone, and the US is also the trend for industrial production in India which fell 4.3 percent on the year in September, weakening further from a decline of 1.1 percent in August and weaker than the consensus forecast for a drop of 2.2 percent. This is the steepest contraction for industrial production in eight years and was mainly driven by manufacturing output, which fell 3.9 percent on the year after dropping 1.2 percent in August. At their October policy meeting, officials at the Reserve Bank of India lowered their GDP forecasts and cut policy rates for the fifth time in a row. The increasing weakness seen in September's industrial production report may well reinforce the bank's bias in favor of further policy rate cuts at their next meeting in December.

Retail sales

The immediate risk from weakening production is slowing employment in manufacturing and its consequences on consumer health and what to expect for consumer spending. Consumer spending has been holding up across most economies but growth in China has clearly been on the decline. Retail sales in China grew 7.2 percent on the year in October, down from 7.8 percent in September and weaker than the consensus forecast of 7.8 percent. Slowing in October was broad-based, with weaker growth recorded for eight of the ten spending categories including autos, furniture, oil and related products, building and decoration materials, and home appliances. Communications equipment was the one category to record stronger growth, up 22.9 percent on the year in October after increasing 8.4 percent in September, likely reflecting the introduction of the new iPhone model. Barring more iPhone introductions and given the slump in the country's production and trade, Chinese consumer spending is probably not one of the bright spots for the global outlook.

Consumer spending has, by contrast, been the very brightest spot of the US economy in 2019, though growth in the last two retail sales reports has cooled. Retail sales did rise a monthly 0.3 percent in October though year-on-year growth, as tracked in the graph, slowed to 3.1 percent for the softest showing since May. The positives were led by autos where sales rose a monthly 0.5 percent in October. Sales at gasoline stations, which are typically skewed by monthly price swings, jumped 1.1 percent. When excluding both autos and gas, monthly retail sales managed only a 0.1 percent rise to fall below the consensus range. Sales at clothing stores, reflecting weak prices, fell 1.0 percent with sales at furniture stores nearly as weak with a 0.9 percent drop. Sporting goods sales fell 0.8 percent in the month with electronics & appliances down 0.4 percent. A telling confirmation of weakness is a 0.3 percent reduction in restaurant sales, one that doesn't speak to much consumer enthusiasm. A plus in the report, as it usually is, is sales at nonstore retailers which rose 0.9 percent in what is a positive indication for e-commerce sales during the holidays. But overall, momentum going into the holidays doesn't appear to be building and results like this during November and December would raise talk that weakness in manufacturing is indeed pulling back the US economy and increasing the need for further rate cuts from the Fed.

Government spending

The need for a counter cyclical boost isn't the responsibility of central banks alone but also governments, such as New Zealand where the central bank cited higher public spending as a positive for the economic outlook. The US government, having cut taxes and raised spending aggressively, has certainly been doing its share to stimulate demand though the question here is how much fiscal punching power is left. The US Treasury opened its fiscal year 2020 with an October budget deficit of $134.5 billion, 34 percent deeper than the $100.5 billion deficit in October last year and the deepest October deficit, as seen in the dark columns of the graph, since 2015. The larger deficit reflected a 7.6 percent yearly increase in outlays to $380.0 billion in October compounded by a 2.8 percent decline in receipts to $245.5 billion. Outlays were driven by an 8.5 percent rise in monthly spending on health and human services to $105.4 billion and a 7.6 percent yearly increase in defense to $68.2 billion. Also contributing to the rise was a 5.6 percent increase to $94.0 billion in Social Security outlays. The bulk of the year-on-year decline in total receipts came from excise taxes, which fell 60.0 percent to $6.0 billion. A 1.9 percent drop in individual income taxes to $126.4 billion and a 17.9 percent decline in corporate taxes to $6.6 billion also contributed to the revenue decline. How much more the US government can continue to spend and how much more taxes can be cut would only become critical questions were the effects of the Fed's recent rate cuts to prove limited.

Markets: Hang Seng and Shanghai drop, All Ordinaries up

Big gains for Hong Kong's Hang Seng, despite deep declines in economic data, were big market stories of the prior two weeks. But after gains of 1.6 percent and 2.0 percent, the Hang Seng in the latest week, hit not by data but by continued civil unrest, tumbled 4.8 percent. This index is still in the plus column, at plus 1.9 percent year to date and plus 0.9 percent year on year, but has now fallen to the bottom of the performance charts. Hong Kong did post data in the week but the news was led by formal confirmation, previously signaled, that Hong Kong is in recession, posting a quarterly drop of 3.2 percent in third quarter GDP for 2.9 percent yearly contraction. The Shanghai Composite, affected less directly by Hong Kong and more immediately by China's soft run of data, fell 2.5 percent in the week. This index which can move quickly is now in the middle of the performance pack, at a year to date gain of 15.9 percent. Near the top continues to be Australia's All Ordinaries, up 1.0 percent on the week for a gain so far this year of 20.8 percent. The week's data out of Australia included a subdued 0.5 percent quarterly rise in the wage price index which echoes the Reserve Bank of Australia's stated warning that greater job growth is needed to improve wages and in turn lift overall inflation. The RBA has been among the most aggressive banks this year in cutting rates and further cuts, in what also might prove a continued plus for the All Ordinaries, would appear to be in store.

The bottom line

Falling interest rates have been the monetary policy response to falling rates of growth worldwide and, for the stocks markets, have more than compensated for declining trade and production. Whether rate cuts have the sizable effect that markets have priced in and that policy makers expect will play out in economic data during the fourth quarter. A major pick up for production and manufacturing would be a surprise, though slowing for consumer spending perhaps would be no surprise at all.

**Jeremy Hawkins and Brian Jackson contributed to this article

Week of November 18 to November 22

A week capped on Friday with November flash PMIs will get rolling on Tuesday with industrial trends from the UK and manufacturing sales from Canada, where soft results reflecting weak global trade are the expectations. Trade data will be light in the week but will include the latest from Japan on Wednesday. Inflation data in contrast will be heavy beginning on Wednesday with producer prices out of Germany and consumer prices from Canada followed by Japanese consumer prices on Friday where Bank of Japan officials will be watching carefully for any sign of momentum. Business climate data from France will be posted on Thursday as will consumer confidence data from the Eurozone, here too subdued results are expected. The first of the major PMIs on Friday will be from Japan, then France, then Germany, then the Eurozone and little to no improvement with stagnant to contractionary scores, especially for manufacturing, the wide consensus. Should the bulk of the week's data come in as expected, a lifeless run into year-end would be the outlook for the global economy.

UK: CBI Industrial Trends for November (Tue 11:00 GMT; 06:00 EST)

Consensus Forecast: -29%

CBI's industrial trends report has been signaling sharp weakness, whether for output or employment or demand both domestic and overseas. After minus 37 in October, forecasters see November's headline at minus 29 percent.

Canadian Manufacturing Sales for September (Tue 13:30 GMT; Tue 08:30 EST)

Consensus Forecast, Month-to-Month: -0.5%

Canadian manufacturing sales have been struggling but, thanks to a rebound for autos, did improve in August, posting a 0.8 percent monthly gain though still down 0.5 percent year-on-year. Monthly sales in September are expected to fall 0.5 percent.

Japanese Merchandise Trade for October (Tue 23:50 GMT; Wed 08:50 JST; Tue 18:50 EST)

Consensus Forecast: -¥300.0  billion

Consensus Forecast, Exports Year-over-Year: -7.6%

Consensus Forecast, Imports Year-over-Year: -15.0%

A deficit of ¥300.0 billion is expected for the October merchandise trade report versus a deficit of ¥123.0 billion in September. Both imports and exports have been in year-on-year contraction most of this year and more of the same is expected for October, at minus 7.6 percent for exports and minus 15.0 percent for imports.

German PPI for October (Wed 07:00 GMT; Wed 08:00 CET; Wed 02:00 EST)

Consensus Forecast, Month-to-Month: 0.0%

Consensus Forecast, Year-over-Year: -0.4%

German producer prices are bumping along at three-year lows. October's consensus is no change for the monthly rate and minus 0.4 percent for the yearly rate, which would compare with respective results in September of plus 0.1 percent and minus 0.1 percent.

Canadian CPI for October (Wed 13:30 GMT; Wed 08:30 EST)

Consensus Forecast, Month-to-Month: 0.3%

Consensus Forecast, Year-over-Year: 1.9%

Headline consumer prices fell 0.4 percent in September though year-on-year change held steady at 1.9 percent and just below the Bank of Canada's 2 percent target. For October, the consensus is a 0.3 percent monthly increase and once again a 1.9 percent yearly rate.

French Business Climate Indicator for November (Thu 07:45 GMT; Thu 08:45 CET; Thu 02:45 EST)

Consensus Forecast, Manufacturing: 100

After holding mostly steady this year, France's business climate indicator sank sharply though economy-wide sentiment did hold up in the October report. For November, INSEE's measure of manufacturing sentiment is expected to rise 1 point to 100 versus 99 in October.

Eurozone: EC Consumer Confidence Flash for November (Thu 15:00 GMT; Thu 16:00 CET; Thu 10:00 EST)

Consensus Forecast: -7.3%

Confidence has been soft but generally steady, at minus 7.6 percent in October and slightly more in the negative column than prior months. Forecasters see the European Commission's consumer confidence flash coming in at minus 7.3 percent for November.

Japanese Consumer Price Index for October (Thu 23:30 GMT; Fri 08:30 JST; Thu 18:30 EST)

Consensus Forecast Ex-Food, Year-on-Year: 0.4%

Minimal pressure is the consensus for ex-food consumer prices, at a year-on-year 0.4 percent pace in October following what was a lower-than-expected 0.2 percent pace in September and well below the Bank of Japan's 2 percent target.

Japanese PMI Manufacturing Index Flash for November (Fri 00:30 GMT; Fri 09:30 JST; Thu 19:30 EST)

Consensus Forecast: No consensus

Japan's manufacturing PMI has been a little under water all year, ending October at 48.4. There is no consensus for the November flash.

French PMI Flash for November (Fri 08:15 GMT; Fri 09:15 CET; Fri 03:15 EST)

Consensus Forecast, Manufacturing: 50.9

Consensus Forecast, Services: 53.1

Consensus Forecast, Composite: 52.7

At a consensus 50.9, France's PMI manufacturing flash for November is expected to show further but still limited improvement from October's final at 50.7 and October's flash of 50.5 flash. The services flash in November is seen up slightly at 53.1 with the composite at 52.7.

German PMI Flash for November (Fri 08:30 GMT; Fri 09:30 CET; Fri 03:30 EST)

Consensus Forecast, Manufacturing: 43.0

Consensus Forecast, Services: 51.7

Consensus Forecast, Composite: 49.1

Severe contraction in manufacturing has been pulling back expansion in services, and more of the same is the call for November's set of PMIs out of Germany. Manufacturing is seen holding in the low 40s at 43.0 with services moving 1/2 point lower to 51.7. The composite is seen at 49.1.

Eurozone PMI Composite Flash for November (Fri 09:00 GMT; Fri 10:00 CET; Fri 04:00 EST)

Consensus Forecast, Manufacturing: 46.4

Consensus Forecast, Services: 52.5

Consensus Forecast, Composite: 50.9

Slow growth for services and significant contraction for manufacturing are the expectations for November's PMIs from the Eurozone, at 46.4 for manufacturing and 52.5 for services. Consensus for the composite Eurozone flash is 50.9.

Canadian Retail Sales for September (Fri 13:30 GMT; Fri 08:30 EST)

Consensus Forecast, Month-to-Month: -0.1%

Canadian retail sales in September are expected to decrease 0.1 percent in a repeat of the 0.1 percent dip in August that reflected declines at food and beverage stores as well as gasoline stations.