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The two sectors most sensitive to the state of the business cycle—home building and manufacturing—have been sending conflicting signals about the economy’s health. But their combined contribution to growth, essentially nil, is sending a message that’s rarely been seen outside of recession or war.

In 2018, the rate of construction starts for new homes fell more than 10%, while the output of the U.S. manufacturing sector rose more than 3%. So far this year, the pattern has reversed, according to the latest housing data from the Commerce Department and industrial production data from the Federal Reserve.

The data, for September, highlight the varying fortunes of these two cyclical sectors. Since the end of 2018, U.S. manufacturing output has succumbed to the global slowdown that began at the end of 2017. American production is now down about 2% from its previous peak, with the biggest declines in primary metals and machinery.

Excluding energy extraction, refining, and distribution, average U.S. industrial output in the six months from April through September was about 2% lower at an annual rate than in the six months from October 2018 through March 2019. That decline is comparable to what American manufacturers experienced during their last downturn in 2014-16.

U.S. manufacturing production has been essentially flat for the past six months, although some sectors have experienced some significant ups and downs during that period, particularly motor vehicles (thanks in part to the General Motors strike and associated plant closures) and aerospace (thanks in part to Boeing’s travails with the 737 MAX, which have since reversed).

By contrast, housing has rebounded since the trough at the end of last year thanks to the substantial decline in real mortgage rates.

The number of new permits to build housing hit its highest level since the middle of 2007, as has the number of new homes currently under construction. While the rate of housing starts remains slightly below the peak at the beginning of 2018, it is up more than 8% since the end of 2018 and should continue to rise to converge with the number of authorizations as long as mortgage rates stay relatively low.

So far, the net effect of all this is that business investment in equipment and residential construction spending have together contributed essentially nothing to the growth of U.S. gross domestic product since the beginning of 2018.

That has never occurred outside of recessions, with two notable exceptions. The first instance was during the Korean War, when the government was shifting real resources away from the private sector to support a military buildup. The second was in 1966-67, when the government was doing the same thing during the Vietnam War, although even then, the slowdown in home building and equipment investment coincided with a slowdown in overall growth. (That was also the only time the U.S. yield curve has ever inverted without being followed by a recession.)

The big question is whether the recent slowdown in consumer spending means the pain in the manufacturing sector is spreading, or whether the recovery in home building is the more accurate harbinger for the rest of the economy.

The answer could be the difference between an economy growing for several more years or entering recession the eve of the 2020 election.

Write to Matthew C. Klein at matthew.klein@barrons.com