Jan 8, 2020

Why U.S. manufacturing and services are moving further apart

Expand chart
Data: Institute for Supply Management; Chart: Axios Visuals

While U.S. manufacturing has fallen into its deepest hole in a decade, the all-important services sector keeps chugging along.

What's happening: The Institute for Supply Management's gauge of the U.S. services sector yesterday produced a reading solidly in expansionary territory and above expectations. That was a far cry from the company's manufacturing index, which last week hit its weakest level since June 2009.

  • The gap between the two indexes in December was the largest since November 2015 and the third largest differential in a decade, ISM data show.

Why it matters: The manufacturing industry is typically thought of as a leading economic indicator, and a sustained downturn in the sector has historically presaged turmoil and even recession.

  • However, that does not look to be the case right now, ISM CEO Tom Derry tells Axios.

What they're saying: "If we were having this conversation in 1965, it would’ve been a much more serious concern," Derry says of the low manufacturing numbers.

  • The U.S. manufacturing industry has been hurt by the strong dollar and global consumer demand that has been weakened significantly by the trade war and tariffs, he adds.

"The services sector is a little more impervious to those factors," Derry says.

  • For example, demand for health care, financial services and higher education is not as dictated by price.
  • And, while the trade war has led to sustained weakness in countries as diverse as Germany, Lebanon and the Czech Republic, the U.S. derives little of its GDP from selling goods overseas.

State of play: Manufacturing represents just about 11% of the U.S. economy, while the services sector has become the dominant means of employment and earnings for the vast majority of Americans.

  • The U.S. has been able to see sustained job gains and wage increases even as sectors like manufacturing, mining, transportation and trade have suffered.

Between the lines: The Fed's three rate cuts and bond buying in 2019 also have played a role in allowing the services sector to continue its strong performance, largely unabated by manufacturing's slowdown, Julia Coronado, president of MacroPolicy Perspectives, tells me.

  • "That kept financial conditions pretty buoyant, that keeps confidence high and is a buffer for consumers ... so you keep that virtuous cycle going between hiring and consumer spending that centers on the service industry."
  • "Certain industries in certain regions are feeling the pain of the manufacturing slowdown but it’s not dominating the economy overall."

Go deeper:

Go deeper

Manufacturing should bounce back in 2020

Illustration: Aïda Amer/Axios

Last year was one to forget for the world's manufacturers, as industry metrics declined to some of the lowest levels in years.

The state of play: Investors and industry insiders see the sector mounting a comeback in 2020 as the trade war and tariffs are expected to recede, global demand is expected to increase and companies begin to reroute their supply chains.

Go deeperArrowJan 15, 2020

Fed manufacturing indexes jump in January

Data: FactSet; Chart: Naema Ahmed/Axios

The Richmond Fed's January manufacturing survey recorded its highest reading in almost a year and a half on Tuesday.

Why it matters: The survey is considered a potential leading indicator of overall manufacturing because it is released close to month-end and may offer clues on national manufacturing readings like those from ISM and IHS Markit.

Go deeperArrowJan 29, 2020

Women outpace men on U.S. payrolls

Data: Bureau of Labor Statistics; Note: Men count was derived by subtracting women count from total; Chart: Andrew Witherspoon/Axios

There are more women on American payrolls than men as of the latest U.S. jobs report.

Why it matters: The data reflects a hiring boom in industries that are female-dominated, while sectors that are more likely to employ men are lagging in job gains. The last time women overtook men in payrolls was “during a stretch between June 2009 and April 2010,” according to the Wall Street Journal, which first reported the milestone.

Go deeperArrowJan 10, 2020