The two-track US economy

The bifurcation within different parts of the US economy has gotten extreme.

The flash reading of September’s manufacturing purchasing managers’ index (PMI) for the US fell to a 15-month low of 47. Readings below 50 point to contraction in the sector. Meanwhile, the flash US services PMI moderated slightly — but to a healthy 55.4.

The 8.4 point gap between the two series is the largest since at least September 2021.

These surveys ask business leaders a series of questions on whether business conditions have improved, deteriorated, or stayed the same over the past month.

“Inflows of new work in the service sector rose at a rate just shy of August’s 27-month high, but new orders placed at manufacturers fell at the sharpest rate for 21 months,” according to the press release. “Similarly, new export orders for services rose at an increased rate while goods export orders fell at a faster pace, highlighting divergent broader global demand conditions.”

The good news: services are a much, much larger part of the economy than manufacturing, so if you had to pick only one of these to be firing on all cylinders, it’d be this one. Because of how much typical patterns of spending were distorted by the pandemic, we’ve seen prior head-fakes where manufacturing sent a much more negative signal about the economic outlook than services — like the middle of 2023, for instance — and nevertheless, the US economy kept chugging along.