A Split Economy, with Non-Manufacturing Continuing to Grow in December

By at 8 January, 2020, 11:58 am

by Raymond J. Keating-

While the latest ISM manufacturing survey showed that manufacturing activity declined in December, the ISM’s non-manufacturing survey pointed to growth in December for non-manufacturing businesses.

Indeed, while economic activity in manufacturing has been declining for the last five months, and has been soft or contracting over the past nine months, according to ISM, non-manufacturing activity grew in December at a slightly faster rate than in November, and remains on a long stretch of growth.

As ISM reported, “Economic activity in the non-manufacturing sector grew in December for the 119th consecutive month… The NMI registered 55 percent, which is 1.1 percentage points higher than the November reading of 53.9 percent.” As ISM explained: “A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.”

As for what this means for overall economic growth, the two ISM surveys tell two different stories. That is, non-manufacturing is growth and manufacturing is declining. The manufacturing survey indicated that real GDP growth at the close of 2019 came in at about 1.3 percent, while the non-manufacturing survey pointed to growth of 2.2 percent.

If we split the difference – and give more weight to the non-manufacturing industries given the make-up of the U.S. economy – then the U.S. economy was still growing at less than 2 percent at the end of this past year.

That’s nothing to celebrate, but instead, something to be concerned about. Indeed, under-performing growth since 2005 has been a problem for the U.S., and we could really use all major policy areas – taxes, regulations, trade and government spending – being shifted into the pro-growth zone. That most certainly has not been the case with trade and spending in recent times.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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