Breaking Down China’s Slowdown

Trade tensions continue to weigh on China’s growth, creating added pressure to reach a trade deal with the United States.

Economic reports released last week provided further confirmation that the trade war is continuing to affect the Chinese economy. As shown in the LPL Chart of the Day, Industrial Production Weakening in China, U.S., China’s manufacturing increased just 4.8%, the slowest rate of growth in 17 years. Although that rate of manufacturing growth exceeds that of the United States, it represents a sharp slowdown for China.

Other data showed China’s retail sales grew 7.6% in July from the prior year, a full percentage point below consensus expectations.

U.S. industrial production has not been immune to trade woes, particularly the manufacturing sector. However, manufacturing plays a much smaller role in the U.S. economy. When trade friction hit, China was already trying to negotiate a challenging transition from an economy focused on manufacturing and exports to a greater emphasis on consumer spending and services.

“While trade uncertaintly has weighed heavily on the Chinese economy, U.S. manufacturing and business spending have also taken a hit.  Consequently, we have reduced our 2019 gross domestic product forecast to 2%,” said LPL Research Chief Investment Strategist John Lynch. “We still think both sides are motivated to make a deal, which should provide a lift to global activity.”

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Please see the Midyear Outlook 2019: FUNDAMENTAL: How to Focus on What Really Matters in the Markets for additional description and disclosure.

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