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Expand chart
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.

Go deeper

Scoop: Border officials project 13,000 child migrants in May

The "El Chaparral" border crossing at Tijuana. Photo: Stringer/Picture Alliance via Getty Images

A Customs and Border Protection staffer told top administration officials Thursday the agency is projecting a peak of 13,000 unaccompanied children crossing the border in May, sources directly familiar with the discussion told Axios.

Why it matters: That projection would exceed the height of the 2019 crisis, which led to the infamous "kids-in-cages" disaster. It also underscores a rapidly escalating crisis for the Biden administration.

1 hour ago - World

U.S. strikes Iran-backed militia facilities in Syria

President Biden at the Pentagon on Feb. 10. Photo: Alex Brandon - Pool/Getty Images

The United States on Thursday carried out an airstrike against facilities in Syria linked to an Iran-backed militia group, the Pentagon announced.

The state of play: The strike, approved by President Biden, comes "in response to recent attacks against American and Coalition personnel in Iraq, and to ongoing threats to those personnel," Pentagon press secretary John Kirby said in a statement.

Senate parliamentarian rules $15 minimum wage cannot be included in relief package

Photo: Al Drago/Getty Images

The Senate parliamentarian ruled Thursday that the provision to increase the minimum wage to $15/hour cannot be included in the broader $1.9 trillion COVID relief package.

Why it matters: It's now very likely that any increase in the minimum wage will need bipartisan support, as the provision cannot be passed with the simple Senate majority that Democrats are aiming to use for President Biden's rescue bill.