This one chart tells the whole story of the US economy right now: manufacturing down, services up.
On Wednesday we got more news that the services sector, which accounts for about two-thirds of economic activity, is on fire. This is in contrast to the manufacturing sector, which as we learned on Monday is sitting right in-between expansion and contraction and is more or less treading water.
(Other strategists and economists have declared that the sector is in recession.)
The manufacturing sector, however, accounts for about 12% of economic output, making it more than 5 times smaller than services.
As Pantheon Macroeconomics’ Ian Shepherdson wrote in a note to clients on Wednesday, this divergence is, “The U.S. economy in a nutshell: The non-manufacturing sector is booming, and the manufacturing sector is struggling.”
Shepherdson added, “Plunging oil prices and the strong dollar have transferred resources to consumers from oil producers and manufacturers. Non-manufacturing’s share of GDP is five-and-a-half times bigger than manufacturing, which is why we are bullish on growth and nervous of upside wage and inflation risks next year.”
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