U.S. services not set for big rebound yet
As U.S. manufacturing fell into the dumps – along with manufacturing elsewhere around the globe – we’ve been repeatedly told by economists not to be distracted by what likely is a passing phase.
Never mind that trends in manufacturing nearly always lead the broader economy, and that history shows the U.S. Federal Reserve, for that very reason, tends not to start raising interest rates when factory activity is gasping for growth.
These are the unfortunate side-effects from a strong dollar on U.S. exports in a competitive global marketplace, economists have warned, taken together with a broad slowdown in world trade and a huge pile-up in U.S. manufacturing inventories early in 2015.
Watch services, they have been telling us, because that what makes up the vast majority of the world’s largest economy as manufacturing’s share of the economy keeps waning by the day.
For a while, that was a reassuring tale – until services began to follow manufacturing’s lead.
After hitting a peak in the middle of last year, U.S. services growth according to the monthly survey of American businesses from the Institute of Supply Management has slowed rapidly, taking forecasters off guard for the last four months in a row.
The latest set of forecasts don’t suggest a quick rebound.
Over the past few months, the ISM non-manufacturing index, as well as the Reuters consensus, maximum and minimum forecasts have all been declining.
The last time it fell three or more months in a row was during March to July 2012, which coincided with economic trouble early that year.
To be fair, there’s more than just something to the inventory run-down tale on manufacturing, which lends support to the view things may improve from now on.
As warehouse stockpiles have been depleted, leaving room for more production, manufacturing may be finding its footing, albeit at a very weak level of no growth at all.
And after a long period of undercutting expectations, the manufacturing PMI beat consensus in February by a significant margin for the first time in nearly a year.
What we don’t know is how much momentum is behind it, and whether it’s the start of a return to growth for manufacturing. There isn’t much sign of a turnaround taking place anywhere else, either.
Together, the data suggest something around a 2 percent rate of growth for the world’s largest economy.
That’s not a disaster, of course, but not enough to drag the rest of the world out of its funk.
— With analysis by Krishna Eluri