The U.S. economy keeps on humming along. Initial jobless claims fell last week to 264,000, the lowest level since all the way back in 2000. Industrial production jumped 1 percent in September, the biggest rise in almost two years. GDP rose 4.6 percent in the second quarter, the most since 2011.
But China? Europe? Other foreign economies? They’re still running off the rails, with confirmed bear markets the norm.
We just learned this week that Chinese GDP grew only 7.3 percent in the third quarter. That sounds strong compared with what we’ve achieved here. But for the formerly high-octane Chinese economy, it’s a disaster! Not only was it down from 7.5 percent a quarter earlier, it’s the worst growth rate since the depths of the Great Recession in 2009.
China is now on track to miss its government’s full-year growth target for the first time in 16 years. And unless things pick up soon, 2014 could be the worst for GDP in 26 years.
A key culprit is the country’s collapsing real estate market. Home sales plunged by almost 11 percent in the first three quarters of 2014, while investment in fixed assets rose at the slowest pace since 2001.
|China’s central bank is about to toss 200 billion yuan at its slowing economy.|
Policymakers are scrambling to respond. They injected 500 billion yuan into the top five state-backed banks earlier this year, and just said they’d shovel another 200 billion down the rat hole shortly. Interest-rate cuts could also be on the table. But none of it is making much of a difference.
Meanwhile, in Europe, things are deteriorating so quickly that the European Central Bank is now talking about buying corporate bonds. That would be in addition to so-called covered bonds used to fund things like mortgages and asset-backed securities that help finance credit card and auto loans.
The amazing thing is, these trial balloons and new programs are being rolled out at an ever-increasing pace. That proves the ECB is so panicky it’s throwing everything it can against the wall to see what — if anything — will stick. Yet the real economy isn’t gaining any traction, even if the announcements periodically goose stock prices.
Bottom line: Markets here in the U.S. are outperforming those overseas, and so is the underlying economy here. But the ongoing deterioration in growth in foreign countries is clearly NOT easing up. So the question still remains: Will those “anchor economies” drag us down or will our stronger economy lift them out of the doldrums?
The answer isn’t clear … yet. But the deterioration in several key sectors — and the sharp technical break we saw in many markets in October — are potential warning signs that all is not well out there. So I continue to advocate taking a more cautious approach to investing than I have in a long time.
Until next time,