Manufacturing, Services Plot Different Courses against Trade Winds

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Special Guest Blogger: Daniel Wang

The recent slew of incoming global economic data has been disappointing, with the gap between the U.S. manufacturing and services PMIs at a five-year wide point. U.S. trade policy is negatively affecting the manufacturing sector, as we muddle through this weaker than expected capital expenditure cycle and see U.S. manufacturing PMIs slip below the 50 threshold, which indicates contraction. Global trade tensions and political uncertainty also have weakened corporate confidence, and continue to present downside risks to future capex plans and hiring decisions. The service sector is showing some signs of positive momentum while small business optimism has continued to strengthen in five of the last six months. The improvements across service and small businesses suggest continued strength within the tight labor market, which is a positive tailwind for consumption and the U.S. economy as a whole.

The key issue moving forward continues to be whether trade tensions escalate or de-escalate, and how any potential deterioration in trade relationships will impact domestic small businesses and the service sector, which together make up around 90% of the economy.

Please follow capital expenditures on page 11 of the Global Perspectives book.

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