Service Economy Survey Shows Significant Drop in Optimism, but Not Recessionary

Posted by Vident Financial on 2/7/19 12:15 PM

A 7% drop in optimism among managers of service companies is no reason to celebrate, but it's also no reason to panic either. When anything above 50 is expansionary, 57 points is not bad. But given that the economic growth program was supposed to center on a manufacturing renaissance, a level of optimism for service business which is 3 points above that of manufacturers’ is not what one would expect.

My view is that trade wars have a very high degree of unintended consequences. Yes, tariffs are designed to help hard goods exporters, but the problem is that tariffs breed tariffs, and so our tariffs on them trigger them to slap tariffs on us. This is consistent with the observed reality that in 2018, our trade deficits got bigger, not smaller. Trade wars are not easy to win.

ISM Line

Turning the survey results into a regression model and using it to forecast the economy, it's signaling that our economy has recently been growing at less than 3%. Not a recession, but not a boom. Slightly substandard, and lower by far than the average rate since the tax cut program.

ISM Scatter

You can watch a video covering this topic below.

Service Economy Survey

 

Topics: Economics

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