Oct 4, 2019

Services data is following manufacturing

Data: Institute for Supply Management; Chart: Axios Visuals

Bullish market analysts and money managers have been somewhat dismissive of deteriorating manufacturing data this year and its importance, arguing that the sector makes up a minute portion of the U.S. economy.

Why it matters: While that is true, manufacturing is a leading indicator, and more bearish investors have insisted the sector's decline would drag the rest of the economy down with it.

Threat level: The U.S. services sector, tracked by the ISM non-manufacturing index, clearly has been following manufacturing lower this year, with Thursday's report showing the sector at its weakest in 3 years.

  • As a service-oriented economy, the non-manufacturing sector makes up around 70% of America's growth engine, so the report's downward trajectory is a clear sign of distress.

Details: BMO Capital Markets VP of U.S. rates strategy Jon Hill points out that the index's imports component fell into contraction and both the new orders and inventories segments fell notably.

  • Services employment dropped to the weakest since February 2014 and the second-lowest since July 2012.
  • ISM's report also noted that "respondents are mostly concerned about tariffs, labor resources and the direction of the economy," eerily similar to comments reported in the manufacturing survey for much of the year.

The big picture: "This, when taken with the revised [IHS Markit U.S. PMI] release ... that showed services jobs declining for the first time since 2010, indicates that some cracks in the non-factory component of the economy are beginning to widen," Hill said in a note to clients.

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Analysts expect key U.S. manufacturing index to improve this month

Data: Institute for Supply Management; Chart: Axios Visuals

The U.S. jobs report will be the most watched piece of data this week, but Friday will also bring the October reading of the Institute for Supply Management's manufacturing data. The index fell to the lowest level since June 2009 in September.

Why it matters: The U.S. manufacturing industry has seen a consistent decline all year, falling into recession earlier in the year and showing outright contraction for the second month in a row last month.

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Business leaders spooked by Trump's manufacturing slump

Data: Bureau of Labor Statistics; Chart: Axios Visuals

American manufacturers rode a wave of optimism after President Trump took office, clinging to his promises to revive the industry and bring back jobs.

Yes, but: The politically important sector is being choked by his trade war with China, and business leaders tell Axios that the tariffs threaten to upend the economy if not addressed soon.

Go deeperArrowOct 6, 2019

The Treasury yield curve has steepened for all the wrong reasons

Data: Federal Reserve Bank of St. Louis; Chart: Axios Visuals

The U.S. Treasury yield curve is steepening, which typically means investors are growing more confident about the economy. However, analysts say recent moves are actually the result of more fear being priced into the market.

Why it matters: Rather than bets U.S. growth or inflation will pick up, as is the case when the curve sees "bull steepening," action in the Treasury market reflects worry that things could get especially bad in the short term, Tom Essaye, president of Sevens Report Research, tells Axios.

Go deeperArrowOct 4, 2019