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On the latest edition of Market Week in Review, Adam Goff, managing director, investment practice, and Sam Templeton, manager, global communications, discussed recently released economic data points for China and the U.S., as well as U.S. Federal Reserve (the Fed) Chair Jerome Powell’s remarks on inflation and the state of monetary policy.
Chinese exports fall as trade tensions with U.S. continue
With the U.S. and China ensnared in a trade war, there’s been heightened concern over how China’s economy will respond to the slew of tariffs imposed by the Trump administration. September’s Caixin/Markit Manufacturing Purchasing Managers’ Index™ (PMI) reading of 50 confirmed that the tariffs are likely having a detrimental effect, Goff said. “China’s PMI numbers have been sinking steadily over the last few months,” he observed, “and while a PMI of 50 is still roughly a neutral number, compared with where China has been—and the kind of growth that’s been expected from the country—it’s not a particularly impressive reading.” He noted that what really dragged China’s September PMI down was a slump in exports, due to elevated trade tensions.
“None of this is surprising, given how export-oriented the Chinese economy is,” Goff remarked, adding that government officials in China have been stepping up measures to try to protect the economy from the impact of declining exports. These efforts include some tax cuts, in addition to changes in reserve ratios for banks, he said.
Glowing report for U.S. businesses as economy hums along
Shifting to the U.S., Goff said that the effect of trade tensions has been much more muted, with the U.S. economy continuing to churn at a robust pace. For instance, the Institute for Supply Management (ISM)’s non-manufacturing index (which gauges the growth of the U.S. services sector) hit a 21-year high of 61.6 during September, Goff said—well-above what had already been lofty expectations. “A number of 50 is generally considered neutral, and anything above 55 is considered very strong, so a reading of 61.6 is pretty stratospheric,” he said.
