Risk Managed Strategy Funds


LPL: Steady Services Activity

November 15, 2019

Economic Blog
November 6, 2019

The U.S. services sector has steadily expanded this year, even as trade fears drag down manufacturing.

The Institute for Supply Management’s (ISM) non-manufacturing (services) Purchasing Managers’ Index (PMI) climbed to 54.7 in October, its 117th straight month in expansionary territory (above 50). As shown in the LPL Chart of the Day, in recent months ISM’s manufacturing and services PMIs have diverged the most since 2015.


While the growing difference between manufacturing and services data is curious, we see it as a reflection of global weakness in the midst of moderating domestic growth. U.S. manufacturing has been susceptible to a downturn in global factory production as international trade has broken down and demand has dried up.

“We tend to write more about gauges of manufacturing health, as manufacturing is a bellwether for the economy and corporate profits,” said LPL Financial Senior Market Strategist Ryan Detrick. “Services data, however, shows that consumers are still willing to spend amid a tenuous global environment. That dynamic alone could power the expansion forward.”

Manufacturing comprises about 12% of total gross domestic product, while services sectors (such as food services, real estate, and entertainment) account for a much larger swath of output.

There are still signs of trade-related impacts in services, though. Respondents in the ISM’s October survey noted concerns about trade and geopolitical issues, as well as a shortage of labor resources. ISM’s services gauge hasn’t been completely immune from global weakness, either—it has dropped noticeably from an economic cycle peak reached September 2018.

Still, we’d expect to see more deterioration in services activity if a recession were imminent. ISM’s steady low-50 readings show us the U.S. economy is slowing, but it’s still growing at a moderate pace.


Source: https://lplresearch.com/2019/11/06/steady-services-activity/