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By HaleStewart February 11, 2018 7:07 am
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US Economic Week in Review: The Manufacturing and Service Sector Economies Are Doing Well

            Over the last two weeks, the Institute of Supply Management has released their latest purchasing managers index of the manufacturing and service sector.  Both were positive, showing an underlying economic strength that belies the recent market carnage.  In today’s column, I’ll organize the related economic data around these reports to show that the underlying economy is in good shape.

            Let’s start with the manufacturing numbers which fell .2 but is still a very strong 59.1.  The report’s anecdotal comments were strong:

  • "Sales nationally and internationally are strong in Q1. We are increasing our CapEx spend by 30 percent to 40 percent over [the] previous year." (Chemical Products)
  • "We have heard reports of additional business due to the recent reduction of tax rates." (Machinery)
  • "Business outlook is positive on all fronts right now with our customers. Budgets are being approved for new projects, and component prices from suppliers have temporarily stabilized." (Computer & Electronic Products)
  • "Our usual winter slowdown has not occurred, and we are very busy with new orders." (Furniture & Related Products)
  • "Slow start to 2018; pricing on metals is heading up and quotes/orders are picking up as well." (Fabricated Metal Products)
  • "Overall, business remains steady. With several key programs to begin ramping up in the industry, outlook looks good for calendar year 2018." (Transportation Equipment)
  • "Employment is very tight in our area." (Food, Beverage & Tobacco Products)
  • "Business continues to strengthen." (Paper Products)
  • "Business is starting the new year strong. Consumer confidence seems to be driving a lot of our customers’ order requirements higher." (Plastics & Rubber Products)

Other data confirms manufacturing sector strength:

Durable goods orders excluding transportation orders (top chart) have increased for the last year and a half.  Manufacturer orders for consumer goods (middle chart) and nondefense capital spending (bottom chart) are also rising at strong rates.  Industrial production for the manufacturing sector is also up:

And goods-producing employment is increasing:

    

            The service sector report was also strong, with a headline reading of 59.9.  Save for the industries tied to government funding, the anecdotal comments were positive, pointing towards continued growth:

  • "Executive management [is] excited about tax breaks for CapEx purchases in [the] new tax bill." (Information)
  • "Month-over-month steady growth, on average, [is] 3 percent on project volume and 1 percent on total revenue." (Construction)
  • "Signs of strong growth [in] financial performance expectations given the recent tax changes." (Finance & Insurance)
  • "Positive outlook for 2018. We see huge pricing pressure." (Health Care & Social Assistance)
  • "Business is starting off solid." (Accommodation & Food Services)
  • "First quarter begins slow like 2017, but expect things to pick up later in Q1. Outlook continues to look bright for 2018." (Professional, Scientific & Technical Services)
  • "Business activity is low due to the continued partial funding [of] bills passed (continuing resolutions)." (Public Administration)
  • "Overall, sales velocity looks strong. Some regional differences due to weather conditions, but overall, a strong month." (Wholesale Trade)

There is less publicly available data on the service sector, but the data we have is positive.  Let’s start with industry level GDP growth from the BEA:

All four groupings have performed well for the last five years.  And service sector employment is growing is increasing on an absolute and Y/Y percentage basis:

There are two areas of service job weakness:

Retail sales jobs (top chart) and information service jobs (bottom) are contracting on a Y/Y basis.  But other areas continue to grow. 

            But despite these pockets of softness, both the manufacturing and service sector of the economy are doing well. 

In 2009, F. Hale Stewart, JD. LL.M. graduated magna cum laude from Thomas Jefferson School of Law’s LLM Program.  He is the author of three books: U.S. Captive Insurance LawCaptive Insurance in Plain English and The Lifetime Income Security Solution.  He also provides commentary to the Tax Analysts News Service, as well as economic analysis to TLRAnalytics and the Bonddad Blog.  He is also an investment adviser with Thompson Creek Wealth Advisors. 

 

           

 

 

 

 

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