Wednesday, July 6, 2016

Service sector continues to grow

The service sector of the U.S. economy accounts for about 70% of all jobs, while manufacturing payrolls account for about 9% and government about 15%. So the health of the service sector tells us a lot about the health of the overall economy. The latest news on the health of the service sector shows it is doing just fine, which is a good reason to think that the bond market is overly concerned about downside economic risks.


The Business Activity subindex of the IMS service sector report for June running is actually a bit higher than its 6-yr average.


The Prices Paid subindex shows that deflationary pressures associated mainly with declining oil prices have substantially dissipated.


The Employment subindex is still positive, but not by much. This reflects a lack of business confidence in the future, and that in turn dovetails with the lack of business investment in general and the fact that this recovery has been the weakest on record.


The overall Service Sector report for June was also a bit higher than its 6-yr average. Conditions are not quite as healthy in the Eurozone, but their index is still comfortably in positive territory.
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7 comments:

  1. GrechsterJuly 6, 2016 at 8:27 AM

    Scott: I'd be keenly interested in any of your up-to-date readings of all things related to credit.

    While I'm highly sympathetic to your observation that stocks are cheap relative to bonds and that bond yields are reflective of over-the-top fear, I'm worried about credit crack-ups.

    I've been watching four Euro bank charts, two on the continent and two in the UK (DB, CS, BCS, and RBS). I'm not exactly sure what these charts are telling me, but whatever it is, it isn't good. And the badness, if you will, must have something to do with credit. No?

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  2. marcusbalbusJuly 6, 2016 at 8:49 AM

    rt. a diffusion index is "smarter" than the bond market. we demand more QE

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  3. GrechsterJuly 6, 2016 at 9:21 AM

    My goodness, Marcus, you're an insufferable bore.

    So you're buying bonds now? What do you see in six months? Why don't you go on the record with some hard and fast predictions, since you seem to be able to divine precisely what it is the bond market is telling us? At least lower yourself to explaining your obviously deep insights.

    Short of this, please pour yourself a tall glass of STFU.

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  4. steveJuly 6, 2016 at 2:34 PM

    I'll second what Matthew says. Scott, cont you lose this loser?

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  5. Johnny Bee DawgJuly 6, 2016 at 4:59 PM

    Marcus got killed last year when he said he was shorting....right before stocks rallied. Brutal.
    He has been babbling incessantly ever since. I guess its shell shock.

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  6. Benjamin ColeJuly 6, 2016 at 5:47 PM

    It is true that manufacturing is 9% of payrolls.

    But each manufacturing job generates another two to three jobs in related services, such as transportation and administration.

    There is also another idea not often discussed today. A region must export goods or services in order to have income to the region. Tourism is another source of income, or if you are a globaIista in Washington DC, you can tax money into your region.

    I would not sneer at manufacturing, nor the need of a region or nation to export to generate income.

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  7. Scott GrannisJuly 7, 2016 at 5:53 PM

    Matthew, re credit crackups: Credit problems inevitably follow economic distress, so that's the thing to look for. In the meantime, I note that swap spreads are very low in the US and only modestly elevated in Europe (40 bps or so). This tells me that the financial system is not suffering from systemic problems. That doesn't guarantee no credit events, of course, but for now, if they occur, they should be isolated. All bets are off if the global economy tanks, but I don't see signs that point to that.

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