The latest economic indicators from China, Europe, and Japan present a decidedly mixed – and darkening – picture. For every positive example of resilience displayed, there are troubling signs of difficulty. As markets continue to recalibrate, attention is turning to labor markets and political developments here in the states.
Most significantly, China’s PMI figures beat expectations on all fronts signaling that China’s manufacturing activity is as resilient as ever in the face of continued global economic headwinds. China’s exports posted surprising strength. Even with the tariffs that America placed on them, they continued to thrive. On top of this, domestic demand in China is weakening. This has furthered bipartisan calls to enact stimulus measures that would stimulate consumer spending and stabilize investment.
Closer to home in Europe, inflation data showed a small uptick. In September, euro area inflation spiked to 2.2% y-o-y, up from 2.0% in August. This jump was in line with the market’s projections. Price pressures are increasing on the entire region. This increase will be seen as another signal that the European Central Bank (ECB) won’t be able to deliver any more cuts to interest rates in the near future.
Japan’s economic outlook is steady, according to the most recent Tankan business survey. According to our quarterly Business Conditions Survey, optimism about business conditions has continued to be steady and at record highs. This means that Japan’s economy runs on fumes of timid success.
Per some unnamed country, unemployment just hit 6.3%! That’s an uptick from the prior rate of 6.2%. If you look at the unemployment rate, it has increased, but the level of unemployed people has remained relatively stable! This indicates that temporary job losses are not a big issue at the moment.
Here on the other side of the Atlantic, political developments in the United States still define the landscape for many economists and market analysts. The recent government shutdown has only further exacerbated this preoccupation with U.S. politics. At the same time, the Supreme Court decision regarding Federal Reserve Governor Lisa Cook has intensified this scrutiny. Analysts expect the government shutdown to have a short-term direct macroeconomic effect. Worries are mounting about an ongoing effort to delay the release of key economic indicators.
The spotlight on the U.S. labor market isn’t likely to go anywhere soon, especially since it’s often a pivotal driver of economic expectations. Analysts are especially focused on possible cuts to public sector jobs, which would increase fears about job security across the country. The downside is that the risk profile of the U.S. labor market is increasingly tilting negative. This sea change has made us take a deeper dive into labor-related developments.
With all these different signals at play, we should expect markets to respond to both global economic developments and federal political developments. The strength of China’s exports in contrast with the weakness of its domestic demand will be important to watch as Chinese policymakers debate the best course of action. In Europe, the continued high inflation rate means the ECB will tread carefully in the future. At the same time, Japan’s highly stable business environment can provide a buffer against external shocks.