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These Graphs Show Two Important Sectors in the Economy Going in Opposite Directions


“There is a global slowdown everywhere..."

Manufacturing and housing (specifically construction) are two important sectors of the U.S. economy. But let's say one improves while the other declines. What do you think would happen?

They could have a "cancelling out" effect on each other, meaning that rather than speed up or slow down economic recovery, they’ll simply drag out what we currently have: a lagging, depressed economy. And we may be looking at this situation right now with the improvements in the housing sector and declines in manufacturing.

“For the first time all year, sales prices for existing homes rose in April. Home sales are up, too,” The Atlantic’s Derek Thompson reports.

Construction improved as well:

Image courtesy Calculated Risk

So, hey, that’s not too bad, right? At least there has been an improvement in what has long been a badly hurt sector of the American economy. Before you get too excited, remember U.S. manufacturing is slipping.

“There is a global slowdown everywhere: Europe is in a continental recession and there are plenty of signs of trouble in China and India. As a result, a key index for manufacturing strength has fallen below 50% for the first time since the recession,” Thompson writes.

Image courtesy Calculated Risk

Simply put, housing is looking up while manufacturing is looking down.

"If someone looked at just manufacturing, they might think the US is near a recession," Bill McBride of Calculated Risk writes. "And if they just looked at housing, they'd think the economy is recovering. Which is it?"

Indeed, which is it? McBride argues that we should monitor developments in the housing sector to gauge where our economy is headed. Thompson, on the other hand, is a bit more uncertain.

“Housing has had something like twenty thousand false starts, and even a true start will announce the beginning of a very difficult recovery, given slow-rising wages, difficult access to credit for middle-class Millennials and Gen-Xers, and a huge shadow inventory,” Thompson writes.

So what does he predict?

“The most likely scenario, I think, is that housing shifts from neutral to first gear and manufacturing shifts from second gear to join housing in first gear, and two big industries slowly growing gives us basically the same recovery rate we've had: slow, frustrating, precarious, and, somehow, consistent,” he adds.

This story has been updated.

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