How Did the US Service Sector Do in Q1?

Finance & Insurance, Which Dominates the US Economy, Has Blistering Q1. Huge Services Sector Not Yet Hit by Slowdown in Goods.

Revenues in private-sector services in the US rose 5.6% in the first quarter of 2019, compared to a year ago, to $3.94 trillion, according to the Commerce Department’s Advance Quarterly Selected Services Report released this morning. Services dominate the US economy: These “selected services” amount to the equivalent of about 74% of GDP. And all major categories booked solid to hot growth in the quarter.

The services sector, and the US economy overall is dominated, by four biggies. They accounted for $2.84 trillion in revenues in Q1, or about 72% of the total “selected services”:

  • Finance and insurance: 32% of “selected services.”
  • Healthcare: 17% of “selected services.”
  • Professional, scientific, and technical services: 12% of “selected services.”
  • “Information” services, such as telecommunications, software, and data processing: 11% of “selected services.”

The 5.6% year-over-year growth in “selected services” revenues was a slightly slower growth than the hot 6.2% growth in Q4 2018 and the 6.0% growth for all of 2018.

This data is not adjusted for inflation. For reference, the consumer price index (CPI) for services rose 2.6% over the same period.

The size of the services sector, and its continued solid growth, shows why the ongoing slowdown in the goods-based sector is unlikely to push the economy into a recession. Services matter the most. And services are still strong.

So here are the categories, with the biggies of the biggies on top. This does not include all services, just the biggest segments. In its “Advance Quarterly Services Reports,” the Commerce Department makes only limited data available about the sub-categories (it provides more detailed data in later reports). None of the data has been seasonally or inflation adjusted.

Finance and Insurance, Biggest of the Biggies.

This huge and diverse sector – nearly twice as big as healthcare services – dominates the US economy. Revenues in the sector grew 7.1% to $1.26 trillion in Q1, a new all-time record. For all of 2018, the finance and insurance sector amounted to about 24% of GDP. And its share of the economy continues to balloon relentlessly, as the economy continues to “financialize.” It makes a modern economy possible, but it is also leeching off the rest of the economy.

The table below shows total finance and insurance revenues, and the two largest subcategories. There is no separate data yet on the other subcategories, such as “securities, commodity contracts, and other financial investments and related activities.” But the data of these subcategories is included in the top line. All amounts in billions dollars except percentages as indicated (if your smartphone clips the table, hold your device in landscape position):

1Q 2019 1Q 2018 % Change
Finance & insurance  1,262 1,179 7.1%
Banks & Nonbanks 354 323 9.6%
Insurance carriers and related activities 706 654 8.0%

Healthcare and social assistance services.

The second largest services segment, healthcare, does not include the goods-based portion of healthcare, such as pharmaceutical products, medical devices, supplies, etc. This is just healthcare services. Revenues rose 4.5% in Q1 to $676 billion – and below the average growth rate of 5.6% for all services.

Healthcare services fall into four broad subcategories (bold in the table below). In the largest, “ambulatory services,” revenues grew 2.4% year-over-year to $261 billion in Q1. About half of these revenues are generated by offices of physicians.

1Q 2019 1Q 2018 % Change
Health care and social assistance  676 647 4.5%
Ambulatory health care (doctors, dentists, diagnostics, outpatient, home health care) 261 255 2.4%
Offices of physicians 127 125 1.3%
Outpatient care centers 37 35 5.6%
Medical and diagnostic laboratories 13 13 0.7%
Other ambulatory health care services 9 9 1.5%
Hospitals 300 285 5.1%
Nursing and residential care facilities 65 60 7.9%
Social assistance 50 46 8.5%

Professional services

Revenues in professional services grew 4.2% in Q1 year-over-year to $487 billion. This sector is dominated by “computer systems design and related services,” whose revenues in the quarter jumped 7.9% year-over-year to $110 billion.

“Legal services,” as is appropriate for the world’s most litigious society, jumped 8.6% year-over-year to $76 billion. This includes the lawyering that gets done for the M&A boom:

1Q 2019 1Q 2018 % Change
Professional, scientific, and technical services 487 468 4.2%
Legal services 76 70 8.6%
Accounting, tax preparation, bookkeeping, payroll services 55 53 3.4%
Architectural, engineering, and related services 83 85 -1.3%
Computer systems design and related services 110 102 7.9%
Management, scientific, technical consulting services 66 65 1.1%
Advertising, public relations, related services 24 25 -2.1%

Information Services

In this broad “information” segment, revenues rose 6.3% in Q1 to $416 billion. Telecommunication services dominate. This includes wired telecom services revenues of $77 billion, essentially flat compared to a year ago; and wireless telecom services revenues of $66 billion (not including satellite), which rose 2.4%.

But there was double-digit growth in data processing, hosting, and related services, which include internet and cloud-related services:

1Q 2019 1Q 2018 % Change
Information Services 416 391 6.3%
Publishing, incl. software (except Internet) 90 82 9.3%
Motion picture and sound recording industries 27 27 0.9%
Telecommunications, wired & wireless carriers 156 153 2.4%
Data processing, hosting, related services 48 42 14.3%
Other information services 53 46 14.5%

Administrative, support, waste management, and remediation services

Revenues in this category rose 5.8% year-over-year to $247 billion in Q1. The category is mostly composed of administrative and support services, employment services, and travel arrangement and reservation services. A small sliver is the subcategory of waste management and remedial services:

1Q 2019 1Q 2018 % Change
Administrative, support, waste management, remediation 247 234 5.8%
Administrative and support services 222 210 5.8%
Waste management and remediation services 25 24 5.0%

Transportation and warehousing services

This segment ranges from transporting passengers by air to transporting natural gas by pipeline and includes warehousing. Revenues rose 3.5% in Q1 to $236 billion.

And it confirms the slowdown in trucking after the boom: For all of 2018, truck transportation services had surged 8.5%, with the subcategory of “general freight trucking” up 11.5%. But in Q1, services revenues from truck transportation ticked up only 0.8% year-over-year, the weakest of the transportation sub-segments. This confirms prior reporting of declining shipments amid still rising freight rates:

1Q 2019 1Q 2018 % Change
Transportation and warehousing 236 228 3.5%
Air transportation 53 51 3.7%
Water transportation 11 10 8.7%
Truck transportation 69 68 0.8%
Transit and ground passenger 10 10 5.9%
Support activities for transportation 47 46 3.1%
Couriers and messengers 24 23 5.1%
Warehousing and storage 9 9 9.2%

Rental and leasing services

This category covers all types of renting and leasing services related to real estate, autos, trucks, equipment of all sizes, consumer goods, and the like. The largest sub-segment tracks services related to renting and leasing real estate, which rose 5.9%. Total revenues rose 5.2% in the quarter to $169 billion:

1Q 2019 1Q 2018 % Change
Rental & leasing, real estate, auto, etc. 169 161 5.2%
Real estate 117 110 5.9%
Autos, trucks, equipment, etc. 42 40 4.6%

Utilities

Revenues in this segment do not include government-owned utilities. The measure only accounts for services such as line charges for distribution, and the like, but does not cover revenues related to the actual products, such as natural gas, which are goods. It includes investor-owned companies that provide electric power generation, transmission, and distribution; natural gas distribution; and water, sewer, and other systems:

1Q 2019 1Q 2018 % Change
Utilities 155 153 1.2%

Arts, entertainment, and recreation:

1Q 2019 1Q 2018 % Change
Arts, entertainment, and recreation 67 61 10.9%
Performing arts, spectator sports, etc. 30 24 21.6%
Museums, historical sites, and similar 4 4 6.6%
Amusement, gambling, and recreation industries 34 33 3.3%

Accommodation services

This segment includes traveler accommodation, RV parks, recreational camps, and rooming and boarding houses:

1Q 2019 1Q 2018 % Change
Accommodation, traveler and RVs 60 57 3.7%

There are some private-sector services segments that are not included in this list. Services provided by government entities are also not included.

Finance and insurance, with a year-over-year growth rate in Q1 of 7.1%, was the fastest-growing segment of the four biggies, with revenues at banks and nonbanks growing at nearly 10%. These are big growth numbers in a very large sector – and for now, there are no indications that this is heading into a decline.

The much smaller goods-based sector of the economy is going through some gyrations at the moment, causing a lot of valid concern. But in terms of the overall economy, the biggies are services, and when they slow down enough, the economy will head into a recession, but not before then.

Retail space asking rents in Manhattan plunge as landlords try to fill scores of vacant shops. Charts by shopping corridor. Read...  Brick & Mortar Meltdown, Manhattan Style

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  45 comments for “How Did the US Service Sector Do in Q1?

  1. Ivan
    May 17, 2019 at 6:07 pm

    What about monthly % ? Those numbers may be masking a 13% increase until october and a declining since then…..

    • May 17, 2019 at 8:34 pm

      Ivan,

      “… masking a 13% increase until October and a declining since then”

      Good question, but no, it’s not doing that. So let me walk through it step by step.

      1. This data is quarterly, like GDP, not monthly. So I can’t give you monthly numbers.

      2. This data is not seasonally adjusted, but the business activities can be very seasonal (even my WOLF STREET media mogul empire is seasonal), so when you compare non-seasonally adjusted data from quarter to quarter (different seasons), you’re seeing seasonality in addition to other factors.

      3. Q4 was an all-time record, at $4.0 trillion (not seasonally adjusted), and 6.2% growth year-over-year. So there was no slowdown in Q4.

      4. Q1 was just a tad below Q4 at $3.94 trillion (but seasonally, there should be a drop from Q4 to Q1, and there was). However, Finance and Insurance hit an all-time high in Q1.

      5. On a seasonally adjusted basis, Q1 was an all-time record: In its advance estimate, the Commerce Department includes in a one-liner, without the detail, the overall total dollars on a seasonally adjusted basis. This was $4.0 trillion in Q1 2019 (seasonally adjusted), up about 1% from $3.96 trillion in Q4 (seasonally adjusted).

  2. akiddy111
    May 17, 2019 at 6:34 pm

    Robust growth.

    10 years into an economic expansion and we are reading growth data like this about the all important US Services Sector. Who would have thought ?

    Optimists got it right. They watched the usual crowd climb a wall of worry year after year after year. Keep climbing because any day now….

    Remember, Time in the market matters more than timing the market”.

    • Bill Jobs
      May 17, 2019 at 7:01 pm

      America, where the Income of Legal Services went up 8.6%, but the Income of Architects, Engineers and related services dropped 1.3% and Management, Scientific and Technical Services only rose 1.1%. And we wonder why China is pulling ahead of us? America is paying Lawyers, not engineers and scientists.

      • alex in san jose AKA digital Detroit
        May 17, 2019 at 9:56 pm

        30 years ago I was 26, and was (large point of sale terminal maker)’s ace repair tech. I also built and repaired specialized test units that were designed in house, kept our soldering and de-soldering equipment ticking along, etc. I made about 2X the prevailing minimum wage; which I believe was around $5.50 and I made a whole $11 an hour. In the mid-late 80s that was enough, with enough overtime, to have motorcycles, a nice little apartment, never cook at home, pay down student loans, etc. I also had benefits; medical and dental, and a 401k.

        Fast forward 30 years. I make something like 1.2X maybe 1.1X the min. wage, only get in 20 hours a week, no benefits unless I count medi-cal which is basically for those who are poor or on Welfare, and while in the 80s I wasn’t expected to lift anything much heavier than a soldering iron, now I have to hoist all kinds of heavy things around. My knowledge is only good for finding out what things are worth on Ebay. I’m actually amazed I had a chance to get the ol’ soldering iron out to make a cable to test some capacitors last night.

        You know, techs like me used to go out and spend money; a lot of it. The motorcycle dealerships, Miller’s Outpost for jeans (we used to jokingly call it Miller’s Outhouse), I ate a lot of meals at Norm’s, had my fancy-schmancy motorcycle leathers, etc. I bought comic books and humor magazines and bought books and had magazine subscriptions. I’d go over to my friend’s and we’d buy beers and pizza and rent a VHS movie over at “Cockbuster” and somehow we always had money for parts for our bikes or that new T-shirt you just had to have etc.

        This is what’s happening to the 90%.

        • Anon1970
          May 18, 2019 at 9:30 am

          We have become a “winner takes almost all” economy. The bottom 90% have seen their standard of living fall in recent decades or at best are treading water. The very talented, like Bill Gates or Jeff Bazos, are wealthier than the Queen of England. She doesn’t own Buckingham Palace or Windsor Castle or most of the Crown jewels. But she does live well.

    • Lemko
      May 17, 2019 at 8:27 pm

      US Tic data released May 15th for March 2019 indicates the second worst quarter on record going back to 1974 in terms of Bank’s Balance Sheet… The worst quarter ever recorded for US Bank liabilities illiquidity was Q1 2009, Q1 2019 was a hair behind it.

      Federal Reserve clearly wants this cycle to end cause they know what is happening behind the scenes, yet aren’t doing anything. US Treasury releases the Tic Data, and that’s for Q1… Imagine April-May-June Tic data

      We are in a global recession, Japan and Pension funds have kept credit markets alive, now big institutions leaving credit markets as well…

      If wolf decides to do a article on it, and dissect it like he usually does, you guys will see… What is coming is gonna put 08 to shame. Every single data you look at, is as bad as peak end 08… Industrial Production wolf, IP looking worrying

      No joke, whatever longs or calls you have, close position if you haven’t already

      • LoinDesYeuxLoinDeCoeur
        May 17, 2019 at 9:24 pm

        This is interesting to hear since I don’t keep tabs on the TIC data usually. But I do track SOFR (1 percentile+25 percentile)/2 spreads to IOER daily as well as the SOFR 75 percentile to 30 year yields and it looks bad.

        Back in 2018 April SOFR 13avgPercentile spread to IOER was routinely 10 bps less than IOER and occasionally spkiging to 0bps, now it routinely over IOER since march and trending upwards (1.5 bps/month) spikes usually EOM are growing larger spiked to (~10bps over IOER in EOM march 2019, ~20 bps in EOM april 2019, but recently spiked ~10bps over IOER on may 15th). I cant wait to see what the EOM may spike will look like, would not be surprised to see 87% of SOFR transactions 40bps over IOER…

        Back in 2018 April SOFR75p30y spread was like 150bps, now? Between 35 and 45 bps. Usually EOM you see spike where it gets as low as 6bps (2019April) or -39 bps (2019march), but now i’m starting to see little downward spikes in the middle of the month.

        Im thinking game over comes soon, because whichever banks are putting up their treasuries as collateral and paying overnight rates on par with the 30y yield just to have some overnight cash, and nearly all of them borrowing overnight cause IOER cash wont cut it… dead men walking.

        • Iamafan
          May 17, 2019 at 11:37 pm

          There are a lot more participants in Tri-party and Bilateral General Repo which SOFR tracks than the few dealers than can exchange reserves at the Fed.

          Not sure if it matters much if SOFR rates are a little higher than IOER.
          I think they were worried about EFFR, the effective Fed Funds rate getting ahead of IOER. But SOFR is much freer to roam especially quarter and year end.

        • Lemko
          May 17, 2019 at 11:53 pm

          Haha, Fed cut IOER by 5 bps 3 times since 2018 and EFF still above IOER, even after latest cut… https://apps.newyorkfed.org/500.html

          Right now it’s down for maintenance, I check it daily it’s the EFF/IOER posted daily by fed, it’s not flashing Lehman right now but it’s still flashing red… Fed clearly know Shadow Banking Crisis is in the making by looking at Interbank Markets, this time it will be a worldwide Shadow Banking Crisis, it started in India already, reaching Turkey China and most EM’s any month now… 0 % have been around for few years now, same as 3 % non qm mortgages in the States, Commercial Real Estate lending is beyond subprime at the moment. Yes, banks don’t have direct exposure on their sheets for the most part, but they switched risk to Non Banks who borrow from the big banks in the markets, more or less same end result…

          I am bearish as hell, I blasted everything in Junk Bond PUTs but what’s gonna happen will happen, the Fed needs to step in front of this and stop acting like everything is OK. They will stop QT at 100 % at June meeting, or ells it’s madness. I believe ego and pride is stopping them from acting now, less then 6 months ago it was autopilot and 50-75 bps increase for 2019, and it’s now QT ending in June and 200 rate cut bps for 2019… I guess they don’t wanna look like fools having been so wrong

          It might snap before end June, very important meeting the June one, we’ll find out how they handle it… You from Quebec or France ?

        • LoinDesYeuxLoinDeCoeur
          May 18, 2019 at 12:51 am

          RE: Iamafan; And yes I get that SOFR is much freer to roam and not all participants have access to IOER, but when you’ve been trading -10 bps to IOER for years and all of a sudden you are routinely trading over by 1-2 bps and spiking to 10-20bps, that should at least tell everyone that cash overnight is in high demand.

          RE Lemko:

          I have as well junk bond etf puts from sept 19 out to Feb 2020 (heavily skewed towards feb 2020). I also have some puts on some investment grade bonds etfs thats filled with mostly BBB whose statistics on the underlying look relatively bad.

          I just use those spreads above (esp when the spike above norm non EOM) as well as the log normal moving average of 30 sec 20 bin window of bid ask spreads on junk bonds index to time when to buy vix etp calls.

          Nope, from the US, but I’ve been living abroad in Asia between a couple of places for about 4 years now and spoke a decent amount at home and spent a chunk of time in north africa, but I always think of a different psuedo on here and that phrase is what came to mind this time from what you were talking about.

        • May 18, 2019 at 10:14 am

          Interesting everyone lined up on junk bond puts, when you know the combined efforts of central banks and government will be done to rescue the financial economy first and take care of the main street economy second. We may never see 5% unemployment or 5% CPI again, that assumption leaves them free to bail out TBTF, perhaps with less fanfare and transparency this time. Which group suffers more in a credit pinch, main street with no savings, or corporate America sitting on a mountain of cash?

        • LoinDesYeuxLoinDeCoeur
          May 18, 2019 at 11:11 am

          RE: Ambrose Bierce

          In order to be rescued, one must be in trouble. And like the past, trouble is only admitted to after the fact and pretended it does not exist before… unless one wants to pretend that no one made money from a wash out ever because “no one saw it coming” and “this time is different”.

          Main street knows who to go after, if they had to gall too this time rather than holding up picket signs and chanting slogans and wrecking into a ballot booth as if it will change things. Hard to stay in business long term when your customers are broke and have nothing to lose since it was all taken from them.

      • Iamafan
        May 17, 2019 at 11:25 pm

        Commercial Bank Balance Sheet is in FRB H.8 reports. TICData is Treasury international capital

        • Ppp
          May 18, 2019 at 7:09 am

          Jeff Snider at Alhambra has been warning about this for months. Economic activity is collapsing and banks are hoarding dollars. They are not strangling loan demand. There simply is no demand.

        • May 18, 2019 at 11:08 am

          Ppp,

          What world do you live in? Consumer loans have surged in recent years from all-time high to all-time high. Commercial and Industrial loans have surged from all-time high to all-time high, and have more than doubled since since 2010. Corporate debt has blown out all records by every measure. Leverage and borrowing is huge because there is huge demand for borrowing of any kind, including loans, and banks and investors are all too happy to provide it — which is part of the problem, that there is too much debt. The issue is NOT lack of debt. Lack of demand for loans exists only in your imagination. Time for you to look at some actual data, I think.

      • Ppp
        May 18, 2019 at 7:40 am

        You have a brain in your head! Good for you! This is called, No business. There is no loan demand. Wait til the Yuan collapses. The official line is that the Chinese will retaliate by selling U.S. treasuries. The real story is that China desperately needs dollars. This is the curse of the Eurodollar: you can’t cover it up that there is no business. All the “liquidity” in the world won’t hide the lack of business. Business begets liquidity, not the other way around.

        Fairly soon, this will hit factoring (that is, how the real economy gets its money), and the financial system will stop “all at once,” as Hemingway said.

        What a sick sick sick society! Ha ha!

        • Iamafan
          May 18, 2019 at 12:50 pm

          The music and dancing business is in the Shadow Banking system.
          I believe it is now called the Non-Bank Financial Institutions.

    • MD
      May 18, 2019 at 4:03 am

      Robust growth…mostly in debt.

      Dead easy to obtain ‘robust figures’ by allowing people to keep piling on the debts, zero savings or pension provision; no skill or future in that.

      All illusory prosperity, not real wealth creation, hence the reason we have these record figures, time after time, and yet IRs can’t even be raised a fraction of a point without panic.

      That’s because there’s no foundation to it other than a pile of debt created by usurious lending practices.

    • NickL
      May 18, 2019 at 8:19 pm

      How much of it is from INCREASED PRICES. Increased prices from the same quantity consumed = “Increased Revenues”

  3. timbers
    May 17, 2019 at 6:35 pm

    So the figures show we produced more healthcare insurance but less healthcare (live expectancy is falling)…more student educational financial services debt but less education, more information technology spending (4G anyone?) but less information technology (4G isn’t 5G).

    (I’m sure there’s more but I’m not clever enough to know them all.)

    Maybe we can combine these reports with the Fed’s Inflation Fraud Report, throw in some brewed bat wings with a pinch of ground dried snake eyes in a cauldron of brewing goats blood and declare the economy is the most awesomest ever with no inflation and no joblessness and lowest unemployment ever.

    • lt
      May 17, 2019 at 9:19 pm

      I’ll add autos. Recently bought a used car, dealer admitted they made little if no money on the transaction because I paid cash with no financing.

    • NickL
      May 18, 2019 at 8:21 pm

      Healthcare Insurance does not equal health care. More people in America than any other nation are denied access to healthcare and to treatment because they don’t have insurance, insurance won’t cover the treatment or they don’t have hundreds of thousands of dollars to pay upfront.

  4. qt
    May 17, 2019 at 6:42 pm

    “This data is not adjusted for inflation. For reference, the consumer price index (CPI) for services rose 2.6% over the same period.”

    What inflation? Cut interest rate now!

    • Ppp
      May 17, 2019 at 7:42 pm

      Don’t worry, they will. However, it will only send the message that banks and governments are heading for the hills.

  5. Bobber
    May 17, 2019 at 7:20 pm

    So why isn’t the Fed raising rates? This growth rate is above economic potential for services.

    They want to expand the bubble? Inflate our debts away?

    • Ppp
      May 17, 2019 at 7:45 pm

      You hit the nail on the head. Why were Kashkari and Brainard dovish, especially in response to this “awesome” data? Because it’s all B.S. The yuan is collapsing and everyone wants dollars. Why?

      • May 17, 2019 at 8:51 pm

        Kashkari and Brainard are ALWAYS dovish.

  6. John
    May 17, 2019 at 8:28 pm

    Amazing what kind of “economy” can be created out of funny money created from thin air with absolutely no inherent value whatsoever! Could never happen if the money had to be “worked” for, i.e. dug up from the ground and processed into usable product. Hard to predict what will be the outcome of the future system reset.

    • Gershon
      May 18, 2019 at 7:34 am

      Actually it’s not hard to predict at all: either we restore honest money, and hold accountable all those who let our currency be debased and our economy “financialized,” or we collapse.

    • Kent
      May 18, 2019 at 8:08 am

      Then thank God for funny money! Who wants to live in a place with low or no growth and mass unemployment just so we can dig money out of the ground?

      • DawnsEarlyLight
        May 18, 2019 at 11:02 am

        LOL, then this whole bubble should have a banner wrapped around it stating ‘Thank God for Funny Money!’.

  7. Brant Lee
    May 17, 2019 at 9:49 pm

    Which of these services would be the first to slide in a downtrend economy? Insurance? Banking?

    • Ppp
      May 18, 2019 at 7:48 am

      The informal banking system, i.e., factoring. Businesses that routinely pledge inventory or invoices for short period so they can pay current bills (think pay day loans), will find that their factors won’t make the loans anymore. Anecdotally, I have already heard of factors delaying decisions. This is death to the on the ground economy. No worse signal could be sent than that factoring is hesitating. Factoring looks at very short future periods in the economy and asks, Can they pay it back? Any doubt here is dreadful.

  8. NY Geezer
    May 18, 2019 at 7:40 am

    urning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned;
    The best lack all conviction, while the worst
    Are full of passionate intensity.
    —William Butler Yeats, The Second Coming

    The glorious service sector performance obviously is not a measure of America’s prosperity or the state of its health. The service sector is and should more aptly be named the predator sector. The better it is for the predators the worse for the prey. Nature will regulate the predators because nothing else will. William Butler Yeats’ The Second Coming might be predictive here.

  9. sierra7
    May 18, 2019 at 8:24 am

    Mr. Richter…
    One of your best summation with the charts. And, a highly entertaining and informative with varied opinions of what may be to come. Our “economy” is now working out of the “Cloud”…….
    Thank You…..

  10. Colin
    May 18, 2019 at 10:03 am

    The weakness in retail spending lately hasn’t gotten much attention here for some reason.

    • May 18, 2019 at 11:36 am

      In April, retail sales were up 4.9% from April 2018 not seasonally adjusted. It’s not hot, but it’s in the normal range over the past six years.

      The media does a terrible job reporting retail data. What you see in the headlines is the “seasonally adjusted” month-to-month change, so the change in sales from March to April, seasonally adjusted. But seasonal adjustments for retail sales are HUGE because retail sales are very seasonal. For example, typically retail sales plunge 20% – 22% from every December to January. Seasonal adjustments are trying to iron out those seasonal plunges and spikes to zero. The seasonally adjusted month-to-month retail numbers are only as good as the seasonal adjustments.

      The media then report one month that these seasonally adjusted month-to-month numbers “plunge.” A month later, the media report that they “soar.” But consumers don’t change their habits from month to month.

      For a more realistic feel of retail sales, look at not-seasonally-adjusted year-over-year data, either monthly or quarterly.

      That said, because retail data is SO seasonal, and therefore so noisy, seasonally-adjusted data make sense. Just don’t emphasize the month-to-month change by putting it in the headlines, which is all most people read. By itself in the headlines, it’s just misleading.

      Here is non-seasonally adjusted retail sales, in dollars. It shows you the huge seasonal fluctuations of retail sales.

      https://fred.stlouisfed.org/series/RSXFSN#0

      Click on to “Edit Graph.” Under “Units,” select “percent change from year ago,” and there you have it. April was a nice bounce-back, +4.9% year-over-year, into the middle of normal over the past six years. The low point was in December, after a hot October and a good November.

  11. Just Some Random Guy
    May 18, 2019 at 10:06 am

    This is why the trucking recession or depression or whatever you want to call it is moot. Our economy is shifting to a service based economy.

    • alex in san jose AKA digital Detroit
      May 18, 2019 at 8:18 pm

      Yep we’ll all have great careers serving each other pizzas.

  12. May 18, 2019 at 10:32 am

    These figures dovetail with Wolf’s auto credit charts, if you buy on credit, you must have insurance. A credit slowdown would hurt service and feedback through the system. However low Fed rates will not guarantee new credit will flow endlessly. When existing credit overwhelms new credit, new credit slows. It is highly unlikely, politically or otherwise that the 2T spending bill will ever pass. If they issue bonds at a higher yield that devalues the principle of existing supply, and leverages the system downward. Best guess they will be selling UST at something less than the principal value of existing paper, they will set yields higher than buyers are willing to pay par to own, and let the dollar depreciate their sins. High yield corporate has the greatest buffer, when you move the basis in treasuries, you move the goal posts closer. That will lead to overproduction in things like energy, and a deflationary crash.

    • Cashboy
      May 18, 2019 at 10:48 am

      ” If they issue bonds at a higher yield that devalues the principle of existing supply, and leverages the system downward. Best guess they will be selling UST at something less than the principal value of existing paper, they will set yields higher than buyers are willing to pay par to own, and let the dollar depreciate their sins”.

      If all the main Central Banks (Bank of England, ECB, BOJ, Swiss National Bank) are all doing the same then the US dollar will not fall against them.

      I am sure that Chinese government has been printing money for a couple of decades and will and can continue.

  13. ft
    May 18, 2019 at 11:29 am

    I think it was Grandpa who reminded me more than once that service is what the bull does to the heifer. No surprise that the sector does well.

  14. HR01
    May 18, 2019 at 1:41 pm

    Wolf,

    Thanks for all the tables.

    So financial and healthcare make up about half of the service economy in the U.S. which should equate to something close to say, 35% of GDP? That’s a significant chunk that’s on autopilot. If interest rates go up, financial services should go up too via variable rate debt products (credit cards, auto loans, etc.)

    So the Fed raising rates should be no problema. Would just goose revenues further for financial services, the largest component of GDP.

    Besides, when the heck are we ever going to see a normal spread between 3-month T-bills and 10-year T-bonds again? In a healthy, growing economy that spread was typically 250 to 350 basis points. We haven’t seen that for more than five years.

  15. Iamafan
    May 18, 2019 at 2:06 pm

    Bank assets grew about 1% from 2017 to 2018 (full year). Real low.
    This was the slowest growth rate post GFC.
    US Gov’t Security as a percent of Bank Credit (an Asset) has never been any higher (upward of 75%).
    Cash (as an Asset) still is very high at about 12%.
    You begin to wonder what the big banks’ function for society is primarily for. I guess buying Gov’t securities and keeping Excess Reserves at the Fed is tops now.

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