{"id":4737,"date":"2024-08-08T21:22:55","date_gmt":"2024-08-08T21:22:55","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=4737"},"modified":"2025-03-27T15:50:46","modified_gmt":"2025-03-27T15:50:46","slug":"services-to-the-rescue","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=4737","title":{"rendered":"Services to the rescue?"},"content":{"rendered":"<p>A sharp fall in the global manufacturing PMI new orders index in July&nbsp;confirms renewed industrial weakness. The companion services survey, however, reported an uptick in the new business component, which is close to its post-GFC average. Will services resilience sustain respectable overall growth?<\/p>\n<p>The understanding here is that economic fluctuations originate in the goods sector, reflecting cycles in three components of investment &ndash; stockbuilding, business fixed capex and housing. Multiplier effects transmit these fluctuations to the services sector &ndash; there is no independent services cycle.<\/p>\n<p>The manufacturing new orders and services new business indices have been strongly correlated historically, with Granger-causality tests indicating that the former leads the latter but not vice versa*.<\/p>\n<p>Several considerations suggest that the recent divergence will be resolved&nbsp;by the services new business index moving lower:<\/p>\n<p>1. The services future output index correlates&nbsp;with&nbsp;new business and&nbsp;fell to an eight-month low in July &ndash; see chart 1.<\/p>\n<p><strong>Chart 1<\/strong><\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/080824c1.png?__SQUARESPACE_CACHEVERSION=1723112877860\" alt=\"\" \/><\/span><\/span><\/p>\n<p>2. Recent new business readings have been inflated by strength in financial services &ndash; chart 2. Financial services new business correlates with stock market movements, suggesting weakness ahead.<\/p>\n<p><strong>Chart 2<\/strong><\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/080824c2.png?__SQUARESPACE_CACHEVERSION=1723112904733\" alt=\"\" \/><\/span><\/span><\/p>\n<p>3. Consumer services new business&nbsp;correlates with&nbsp;the manufacturing consumer goods new orders index, which&nbsp;fell below 50 in July &ndash; chart 3.<\/p>\n<p><strong>Chart 3<\/strong><\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/080824c3.png?__SQUARESPACE_CACHEVERSION=1723112937825\" alt=\"\" \/><\/span><\/span><\/p>\n<p>Output price indices for consumer goods and services support the optimism here about inflation prospects through mid-2025. A weighted average has fallen back to its October 2009-December 2019 average, a period in which G7 annual CPI inflation excluding food \/ energy averaged 1.5% &ndash; chart 4.<\/p>\n<p><strong>Chart 4<\/strong><\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" src=\"\/storage\/080824c4.png?__SQUARESPACE_CACHEVERSION=1723112966717\" alt=\"\" \/><\/span><\/span><\/p>\n<p><span style=\"font-size: 80%;\">*Contemporaneous correlation coefficient since 1998 = +0.84. Granger-causality tests included six lags. Manufacturing terms were significant in the services equation but not vice versa.<\/span><\/p>\n<p>&#8212;&#8211;<br \/>\nCOMMENT:<br \/>\nAUTHOR: Simon Simmonds<br \/>\nEMAIL:<br \/>\nIP: 195.167.27.8<br \/>\nURL:<br \/>\nDATE: 08\/08\/2024 09:22:55 PM<\/p>\n<p>The rough approximarte average decline in the S&amp;P 500 during the last 10 recessions is 32%. Smallest being around 13% for1960\/1 and largest around 57% for 2008\/9.<\/p>\n<p>If the peak was around 16th July the drop to today, 8th Aug, is around 6%.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A sharp fall in the global manufacturing PMI new orders index in July&nbsp;confirms renewed industrial weakness. The companion services survey, however, reported an uptick in the new business component, which is close to its post-GFC average. Will services resilience sustain respectable overall growth? The understanding here is that economic fluctuations originate in the goods sector, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-4737","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4737","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4737"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4737\/revisions"}],"predecessor-version":[{"id":7046,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4737\/revisions\/7046"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4737"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4737"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4737"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}