U.S. services not set for big rebound yet

March 3, 2016

An Amish boy jumps on a trampoline at his home in Lancaster County, Pennsylvania August 9, 2014. It's that Old World charm of the Amish that draws 8 million tourists - and $1.9 billion - each year to Pennsylvania's Lancaster County, home of the nation's largest Amish community of 31,000. What the Amish don't do, supporters say, is tote rifles as part of a violent protection racket - as depicted in the television show "Amish Mafia" - or regularly defy their religion, like in "Breaking Amish" and "Breaking Amish: Brave New World." And, Amish horror stories are not the norm, despite the plot lines of the upcoming "Amish Haunting." Filmmaker Mary Haverstick is leading a push to eject the shows, airing on the Discovery Channel and related networks, from Lancaster County. The movement is gathering support because of what some see as a demeaning, inaccurate portrayal of the gentle, devout group. But some wonder if the hard-edged reality TV approach is that different from the soft exploitation of the Amish by the local tourism industry. In both, the Amish are unpaid, costumed "extras." Picture taken August 9, 2014.   REUTERS/Mark Makela (UNITED STATES - Tags: RELIGION ENTERTAINMENT MEDIA) - RTR42PO2

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.

ISM Feb services forecast

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.

ISM Feb manufacturing

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

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