PMIs Point to Continuing Divide in U.S. Economy

By at 5 December, 2023, 12:24 pm

by Raymond J. Keating – 

According to readings from the Institute for Supply Management’s purchasing managers’ indexes, the U.S. economy continues to suffer a notable divide.

On the one hand, the ISM Manufacturing PMI indicated that the manufacturing recession continued in November, extending a manufacturing contraction to 13 consecutive months.

On the other hand, the ISM Services PMI pointed to the services sector experiencing continuing growth. That was the 11th consecutive month of expansion for the services sector. For good measure, Anthony Nieves, chair of the Institute for Supply Management Services Business Survey Committee, said, “In November, the Services PMI registered 52.7 percent, 0.9 percentage point higher than October’s reading of 51.8 percent.”

Fifteen service sectors reported growth in November, versus three noting a decline. That’s a striking contrast to manufacturing, where 14 of 17 industries reported contraction in November, with three growth sectors.

As for the outlook from the services side, Nieves pointed out, “There is continuing concern about inflation, interest rates and geopolitical events. Rising labor costs and labor constraints remain employment-related challenges.”

Many reasons exist as to why services might be growing while manufacturing suffers. But two policy points must be cited.

First, international trade is important to the entire economy, but arguably more so for manufacturers as both importers of capital goods and exporters of all kinds of goods. Advancing free trade – i.e., reducing governmental costs and barriers imposed on the ability of consumers, entrepreneurs, businesses, investors and workers to take advantage of opportunities in and from international markets – is vital. Unfortunately, the current and previous presidential administrations have been the most anti-trade White Houses in nearly a century.

Second, regulatory costs tend to fall heavily on manufacturers, especially on small manufacturers (keep in mind that 93.1 percent of employer firms, according to the latest Census Bureau, in manufacturing have fewer than 100 employees). That was made clear in the latest assessment of federal regulatory costs in a NAM study. Rather than increasing regulatory costs, as is the clear preference of the Biden administration and many in Congress, federal elected officials need to be leading a comprehensive deregulation effort.

Yes, policy matters, and both trade and regulatory policymaking need to be pointed in a pro-opportunity, pro-growth direction.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.


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