US: Manufacturing still a major concern, but services more resilient – ABN AMRO

According to Bill Diviney, senior economist at ABN AMRO, it has been a mixed bag of economic data in the US as of late manufacturing sector has weakened even more than we had anticipated, while the services sector is holding up rather better than expected.

"This divergence became more apparent this week, with the ISM manufacturing PMI falling to 47.2 in December - the weakest since June 2009 - while the non-manufacturing PMI recovered to a 4 month high of 55.0. As such, while the manufacturing sector has yet to find a bottom, the weakness has remained relatively contained, with services resilient. The latter is consistent with what payrolls and consumer confidence measures have also been telling us. Ultimately, the lack of a stabilisation in manufacturing keeps us from raising our below-consensus growth forecast of 1.3% for 2020 (consensus: 1.8%). And although some of the headwinds for the sector appear to be easing, there remain significant risks both to the stability of the 'Phase One' China trade deal, as well as potential new fronts in the trade war opening up - most significantly, with the US proposing retaliatory measures against France's digital services tax (and the UK potentially coming into the firing line when it implements such a tax in April). We also continue to expect weakness in manufacturing to eventually drive a renewed slowdown in jobs growth, thereby denting consumer confidence, consumption and the broader economy. However, the resilience of the services sector so far suggests that the risk is for growth to slow by somewhat less than we currently anticipate."