1/
After a solid first half of the year, July saw a sharp slowdown driven by contracting domestic demand.
Our Q3 GDP nowcast points to a contraction of more than 2% q/q annualised, the weakest quarterly pace since early 2022 2/
Industrial production also slowed. While still ~4% above its pre-pandemic trend and up a decent 5.8% y/y, the 6-month annualised pace dropped to just 3.8%, down from more than 5% in June

1/
Some key points on the state of the US consumer

. Retail sales volume has remained nearly unchanged since Q1 2021 and is moving back towards pre-pandemic trends, correcting the excess consumption of goods during the COVID-19 period.

. The decline in retail sales in May has brought their 6-month growth into negative territory (-1.7% ann.) 2/
While total consumer spending, including services, remained strong in April with growth above pre-pandemic averages, the decline in retail sales in May is the first concrete evidence confirming the collapse in consumer sentiment. This sentiment was more than one standard deviation below the average in April and remained very low in May at -0.6

1/
Chinese economic activity in May showed mixed results. The data points to a Q2 GDP nowcast of 4% q/q ann., indicating a slowdown from Q1 (5.9%) but a slight improvement from April's nowcast (3.6%) 2/
The positive surprise came from retail sales in China, which significantly rebounded after a slight contraction in April. This brought the six-month annualized growth to 10%, exceeding pre-pandemic average
While consumption was previously driven by service spending, this uptick in goods sales suggests a potential catch-up, although they still remain 13% below pre-pandemic levels

1/
US inflation came out lower than expected, up a tenth y/y on the headline at 2.4% and unchanged on the core at 2.8%. However, the shorter-term trend is clearly downwards, particularly over 6 months.
A few comments, however, one technical, the others macro 2/
The number of imputations from other items has seen a dramatic increase since Trump took office: from 9% to 30% in May - nearly twice as much as the worst month of COVID - attributed by the BLS to labor shortage.

This implies that the prices of 2333 items (30% of 7776) are no longer being collected and are being replaced by the price of the nearest item. This does not necessarily indicate a systematic bias in not reporting the highest increasing prices, but it remains concerning during a time when tariff transmission is under scrutiny and undermines confidence in CPI data

1/
Chinese activity data for April slowed, with most indicators contracting. Our Q2 GDP nowcast shows 3.6% q/q ann. growth, down from 5.9% in Q1. With an average of 4.8% over the first two quarters, the slowdown isn't significant enough to trigger the anticipated fiscal response, especially after recent monetary support. 2/
On the supply side, industrial production remains 5% above pre-pandemic trends, with slowing growth but still around 7% annualized over the past six months.

1/
Chinese activity in March exceeded expectations, providing strong momentum for the trade war with the US and reducing the urgency for fiscal support
GDP has returned above its pre-pandemic trend with two consecutive quarters of growth above potential: nearly 8% in Q4 2024 and 6% in Q1 2025 2/
On the supply side, industrial production has continued to drive activity, running 5% above its pre-pandemic trend and showing an annualized 6-month growth of 8.5%, which is 2 percentage points above its pre-2020 average

1/
After 2 months of better activity data in September and October, the gradual recovery continues into November. The main private demand indicators combined with PMI surveys show a recovery in our nowcast GDP growth in Q4 to 8.1% from 2% in Q3 2/
Industrial production remains solid, growing at an above-average rate of close to 9% over 3-month annualised, above its pre-pandemic trend

1/
Chinese activity data for June generally came in below expectations and slowed, as did GDP growth, which fell to 4% q/q ann. in Q2 from 6.6% in Q1. Taken together, these 2 quarters still point to growth in line with the Chinese authorities' target of around 5%. 2/
Retail sales volumes contributed to the slowdown, as they contracted in June, leading to a Q2 contraction of 0.9% q/q ann.

1/
US Core inflation was much better than expected, down to 3.3% y/y and a m/m rise of 0.8% once annualized, the 2nd consecutive month below 2% and the lowest since May 2020
The decline stems from the continued contraction in goods prices and to a decline in services inflation 2/
The fall in goods prices is explained by a contraction in demand for goods, since retail sales in volume have been declining for 3 years, falling by 3.8% since the April 2021 peak

1/
A thread on rethinking emerging markets.

Since their introduction as an asset class in 1988, EM equities have outperformed developed markets (10.1% ann. vs 8.9%). But it has been a bumpy ride, with a couple of long cycles in the interim 2/
One of the most salient features of EM in that period was the variability among the asset class’s national equity markets in how they responded to economic factors.

EM outperformance was indeed driven by a very diverse group of 10 countries

1/
US core #inflation came out in line with expectations, down to 3.6% y/y from 3.8%

The decline stems from the continued contraction in goods prices to -1.2% y/y from -0.7%, while services inflation is unchanged at 5.3%. 2/
The fall in the price of goods is justified by demand, since retail sales in volume have been declining for 3 years, falling by an annualized 0.7% since the Nov 2021 peak

1/
The latest US activity and inflation data send a stagflationary signal, with GDP slowing to 1.6% q/q ann. from 3.4% in Q4 and slightly below potential for the 1st time in 18 months, and core inflation rising to 3.7% from 2%.
Where do we really stand in the US business cycle? 2/
A more detailed look at GDP gives a more nuanced picture
The decline in growth is indeed largely due to a sharp rise in imports, thus maintaining strong growth in domestic demand at 2.8% q/q ann. in line with the pre-pandemic 6Y average, but decelerating since Q4 (3.5%)

1/
In February, US household disposable income contracted in real terms, and is now 3.7% below its pre-pandemic trend, but above all is growing at a rate (1.3% 6m ann.) 2 times slower than its long-term trend... 2/
... and households can no longer count on the excess savings accumulated during the pandemic, which should be fully spent by the end of April...

1/
Chinese activity data for the first 2 months of the year were better than expected, starting with industrial production, which continues to grow above its pre-pandemic trend at an annualized rate of over 8% over 3 months 2/
Retail sales volume growth continued to improve gradually, at a rate of 7.7% 3m/3m ann., returning to the average rate seen in the 6 years prior to the pandemic

1/
After a strong rebound in January, the world manufacturing PMI corrected in February, with an uneninspiring movement in the components as activity fell at the margin while inflationary pressure on goods increased 2/
The activity component of the global PMI fell marginally by 0.2pt, but with a wide dispersion by region, with the advanced countries losing 1pt and Latin America gaining more than 2. In terms of levels, EM Asia ex-China remains comfortably in the lead at 54.9

1/
Chinese activity data for December shows that GDP ends the year slightly below (1.6%) its pre-pandemic trend, while GDP growth (4.9% q/q annualized with our own seasonal adjustment) is back to its potential 2/
Growth is back to potential, but the image of the Chinese economy remains unchanged. The property market still shows no signs of recovery on the supply side, and has deteriorated further on the demand side, which is now at its lowest level since mid-2009

1/
Where is #China in its business cycle?
Activity data for September generally confirmed August's rebound after 6 months of declining growth. This is most evident in industrial production (+1%m/m), which continues to rise above its pre-pandemic trend 2/
By sector, industrial production continues to be driven by chemicals, electrical equipment and cars

1/
Is China in or on the verge of balance sheet recession?
Not really, the path that leads from an excess of debt to a deflationary recession is different and longer in China and I'd rather call it a bit heavy-handedly “balance sheet potential growth decline”
Here is why
(thread) 2/
A balance sheet recession starts with a high level of debt, and China has a high debt: the highest of the emerging markets, greater than that of the US but lower than that of some developed markets, not necessarily perceived as the riskiest though (e.g. Switz. or Sing.)

1/5
. September global manufacturing PMI was up three tenths to 48.6, yet remains below the 50 threshold for 13 months, still suggesting a global slowdown

. The rebound was driven by activity components while price pressures were marginally down 2/5
. PMI Activity components rose by five tenths to 48.4 driven by DM, which rebounded from very low levels to 46.2

. EM Asia excluding China remains the region with the highest PMI activity components, and by a wide margin (at 54)

1/3
The first 2 #US manufacturing surveys for September give opposite signals, but taken together the main messages remain little changed from a month ago:
1. activity is expected to slow down as these survey levels are associated with a GDP growth of 0.7% y/y 2. short-term inflationary pressures remain consistent with inflation returning towards its target

1/
. For the first time since March, Chinese activity data for August surprised on the upside, rebounding for the most part from their July lows
. This is particularly true of industrial production, which jumped back above its trend 2/
. Retail sales volumes rebounded by 2% over the month driven by car sales, recovering half of the decline of the last 2 months. Improving trend in consumer spending, which remains well below its pre-crisis level, bodes well for the 2ndhalf of the year