It's great news that US factories are stirring again. But manufacturing ceased to be America's life blood years ago. Across the country, there are more waiters than labourers, more amusement park attendants than engineers, and more shop assistants and sales reps than construction workers. The healthcare sector alone accounts for more than a tenth of gross domestic product.
Because the US is a service economy, last month's contraction in the Institute for Supply Management's non-manufacturing index is worrying. Having risen for the previous two months, it dropped below 50 again, the dividing line between expansion and contraction. Those reporting a decrease in ‘business activity' included important industries such as utilities, real estate, entertainment, transport and education. Most of those also reported a fall in new orders. According to the Bureau of Labour Statistics, industries predicting tougher times ahead account for about 55 per cent of the workforce.
The ISM non-manufacturing index tends to track retail sales, with a couple of months' lag, notes High Frequency Economics. Spending is looking less bad, as year-on-year comparisons improve, but retail sales growth remains negative. Still, if an improving trend continues, this service sector dip should prove temporary. But America's paper-pushers and life-coaches face two problems. First, because services mostly operate in the non-traded sector, they receive little help from a depreciating dollar. This boost to exporters is a big reason some manufacturers are now recovering.