2020-02-10 Bloomberg Businessweek

B U S I N E S

1

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rescinded.Theindustrialsector,bycontrast,bore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