2020-02-10 Bloomberg Businessweek

(Darren Dugan) #1

B U S I N E S


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14


Edited by
Bret Begun

● The industrial downturn
has barely registered on
the still-roaring consumer
spending spree

Bloomberg Businessweek February 10, 2020

DATA:

COMPILED

BY

BLOOMBERG

inJanuary,accordingtoUniversityofMichigandata.
Onereasontherehasn’tbeena broaderreces-
sionis thatmanufacturing’sshareoftheeconomy
continuestoshrink.Factoryoutputaccounted
for11%ofU.S.gross domesticproduct inthe
thirdquarter,whichis tiedwiththesecondquar-
terforthelowestlevelsince1947,accordingtoa
BloombergNewsanalysisofdatafromtheU.S.
DepartmentofCommerce.Anotheristhatthis
wasn’ta typicalslump.Whathappenedin 2019
wasa “policy-drivenslowdown,”saysGinaMartin
Adams,chief equity strategist atBloomberg
Intelligence—thatis,thetradewar.
WhileU.S.whiskey,motorcycles,andmyriad
otherproductsaresubjecttoEuropeanUnion
tariffs, theconsumer sector emergedlargely
unscathedfromthe spatwithChina.Trump’s
threatonAug.1 toapplya 10%tariffon$300bil-
lion of Chinese products including toys and
iPhones waswatereddownandthenpartially
rescinded.Theindustrialsector,bycontrast,bore
thebruntoftheback-and-forthin 2018 and 2019
asit dealtwithbroadU.S.taxesonaluminumand
steelimportsandtariffson$250billionofmostly
manufacturing-related products. Those Chinese
imports remain subject to 25% tariffs.

OnJan.31,CaterpillarInc.warnedthatsalesofits
heavy machinery would slump for a second straight
year in 2020 amid “continued global economic
uncertainty.” On the same day, Amazon.com Inc.
added $72 billion in market value—about the size of
Caterpillar—after reporting robust holiday season
sales. That contrast shows just how much the U.S.
industrial and consumer economies have diverged.
The manufacturing sector went through a mild
recessionlastyearasPresidentTrump’strade
warwithChinaaddedcoststosupplychainsand
curtailed business investment. New data from the
Institute for Supply Management show U.S. factory
activity barely expanded in January after contract-
ing in the last five months of 2019. Yet this industrial
downturn was at most a blip for the still-roaring
consumer spending spree.
While CSX, 3M, and other industrials joined
Caterpillar in making sluggish sales predictions,
McDonald’s and Starbucks reported healthy gains
forthefinalthreemonthsoftheyear.EvenTarget
Corp.,whichwarnedlastmonthofweaker-than-
expected demand for toys and electronics over the
holiday season, still projected sales at stores open
at least a year to be up more than 3% in 2019. U.S.
consumer sentiment reached an eight-month high

60% 40% 20%

Change in fourth-quarter earnings from
2018 to 2019 by S&P 500 industry group

+80%

Utilities


Diversified
financials

Insurance

Pharmaceu-
ticals,biotech-
nology,andlife
sciences

Consumer
services

CONSUMER DISCRETIONARY

FINAN CIALS

HEALTH CARE

Tw o

Economies
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