All this week I've been looking at different economic sectors to see where growth will come from. The problem the economy now faces is no one area is strong enough to drive growth.
Looking at PCEs, there is little reason to think we'll see quarter to quarter growth over the approximately 2% we've seen for the first four quarters this year. Between a high savings rate, high unemployment and paying down debt, it appears consumers are already at their maximum rate of PCE spending. The good news here is PCEs account for 70% of growth, so the largest part of the economy will expand; just not at a robust pace.
Invesetment is also a dud. Any real estate investment is pretty much out for the foreseeable future, leaving equipment and software spending. And while the growth in this area has been robust, it only accounts for 7.5% of GDP. The good news here is businesses are sitting on a ton of cash and have demonstrated they do not want to hire employees, meaning this area of investment spending should continue to benefit.
Manufacturing is clearly slowing. While the overall national numbers are still showing growth, they are just barely positive. The good news here is a cheap dollar should help exports, which -- along with the strong growth in emerging economies -- should prevent this sector from falling into the abyss. But the slowdown across the entire Eastern seaboard indicates this sector is taking a hit from decreased demand somewhere.
Services are growing, but weakly. The regional Beige Book surveys described increases as "moderate" or unchanged. It appears that people are using services only when necessary, and then are haggling over cost.
So, in short, there is growth, but it is extremely weak.