Here's the good news


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American manufacturing looks like its in recession. That's the bad news.

But here's the good news: the US economy's most important growth driver is still booming.

"Weakness in manufacturing, however, is not news, unless you've been asleep all year," Pantheon Macro's Ian Shepherdson wrote in a note on Thursday.


"The sector is being hammered by the strong dollar, weaker growth in EM export markets, and the rollover in oil firms' capex... But it is a small part of the economy, 12% of value added and 9% of employment. It fills the front pages but it is much less important the domestic services sector, which is 5.6 times bigger, and, more to the point, booming."

And so in short, the US economy's engine is not manufacturing, but the consumer. And the things that have been bad for manufacturing have been good for consumers.

A strong US dollar pressures exports and the purchasing power of many international partners manufacturing businesses depend on, while giving consumers a boost. The crash in oil prices has also pressured manufacturing jobs while providing relief to consumers.


Real consumption this year is up 3% over last year, and with consumer spending accounting for about two-thirds of GDP growth, this is the real story and the one driving the US economy towards its best year since before the financial crisis.