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Tale of Two Economies By Fulbright Financial Consulting, PA Thumbnail

Tale of Two Economies By Fulbright Financial Consulting, PA

It’s not the best of times, nor the worst. But the latest data is a tale of two of U.S. economies.  From a record-high level in September 2018 of 61.3%, manufacturing activity has plunged, and the latest monthly data shows it slipped further in July.  This data series is designed to signal a recession when it falls to less than 50%.  At 51.2%, the manufacturing economy inched closer to indicating a recession could be on the horizon.  Meanwhile, the survey of purchasing managers at non-manufacturing companies, those in the service economy, declined to 53.7% in July. It has also plunged from a record level in September, but it’s still well within its normal range.  It’s much more important and it’s indicating growth is ahead.The “Service Economy” is not growing like it did during the tax-cut fueled peak of September 2018, but it’s doing okay.

Continued growth is confirmed by the survey of 60 economists conducted in early August by The Wall Street Journal. The consensus forecast of 60 economic professionals for the next five quarters is for an average quarterly growth rate of 1.8%. That may seem paltry compared to the 3.1% growth rate in the first quarter, but it aligns with the long-term growth rate expected by the non-partisan Congressional Budget Office. With the service economy expected to grow slowly through 2020, the manufacturing sector is more vulnerable to higher tariffs on U.S. exports to China.  The tale of two economies is an epoch and the drama affecting manufacturing draws headlines but is not so important to the epoch story of America’s economic growth.