Do Business-related Services Really Lag Behind Manufacturing Industries in the Business Cycle?

In an a priori view, it is usually assumed that the business cycle of manufacturing industries leads the business cycle of the service sector. This seems to be even more plausible for the relationship between business-related services, whose high growth rates in recent years were largely due to increased outsourcing activities of the manufacturing sector. In this paper it is shown that the relationship is not as simple as it appears at first sight. We run Granger causality tests between sales growth rates of the business-related service sector against growth rates of various series of the manufacturing sector. It turns out that the relationship between business-related services and manufacturing is either contemporaneous or bi-directional, while no evidence is given for manufacturing leading business-related services.

Kaiser, Ulrich und Katrin Schmelting (1999), Do Business-related Services Really Lag Behind Manufacturing Industries in the Business Cycle?, ZEW Discussion Paper Nr. 99-34, Mannheim.