Last time we checked, services accounted for 80% of U.S. gross domestic product, while the manufacturing part of the economy contributed less than a fifth.
So why doesn’t anyone seem to care about the non-manufacturing data anymore?
The Institute for Supply Management’s services survey for October slipped markedly to miss economists’ forecast. True, the level still came in above 50, indicating expansion rather than contraction, but — yikes — it was the first time the non-manufacturing reading fell in three months. Indeed, it was the biggest monthly percentage decline since March 2011.
Yet when the data was released Monday, the market, market watchers and economists couldn’t even be bothered to shrug.
That could be a big mistake.
Maybe we’re mostly moving past the services survey because it’s only been telling us what we think we already know: The U.S. is plodding along at lame but better-than-recessionary 2% growth. Yes, it’s the weakest recovery since World War II, but that beats what’s happening pretty much anywhere else in the world. Europe is in recession, Japan is a deflationary wreck. And despite some recent green shoots in China, the U.S. economy still is the cleanest shirt in the laundry pile.
But there are some ominous signs that the global slowdown is starting to weigh on the the most important part of U.S. economic output.
New orders, which are critical because they are forward-looking, slumped by 3 points, to 54.8 from an unusually robust 57.7 in September.
More worrisome, exports nosedived into contraction territory, hitting 47.5 from 50.5 the previous month. That’s the largest drop in six months. And prices paid likewise slipped sharply — a deflationary signal no one wants to see.
Both the headline number and the internals were more than meh. One data point doesn’t make a trend, but if the services readings keep moving as they did in October, the market is going to snap back into it and start paying attention again quick.