Rounding Up Recent Economic Data From Britain, Japan, China and America

Political uncertainty appeared to weigh on Q3 GDP growth in the UK and Japan, but underlying consumer demand was steady to strong in both, suggesting ongoing expansion for the two island nations. Meanwhile, October data from China and the US—the world’s second-largest and largest economies, respectively—indicate a fine Q4 start. As political headwinds fade, more can appreciate global economic growth, which should be a tailwind for stocks.

Perhaps Not Great, but Britain’s Growth Is Carrying On

Q3 UK GDP slowed to a 0.1% q/q crawl from Q2’s 0.5%.^[i] Many pundits blamed Budget uncertainty dampening capital expenditures as the main growth drag after S&P Global’s UK Business Outlook showed net optimism on investment plans dropping to 3% in October, a third of the prior month’s level.^[ii] Maybe October will prove a weak month. But the Budget is out now, which grants some clarity. And it isn’t as though business investment was weak entering October: Q3 investment rose 1.2% q/q, slowing only slightly from Q2’s 1.4%. Beyond this, consumer spending rose 0.5%, accelerating from Q2’s 0.2%. Not such a sluggish quarter, in our view.

Pundits also pointed to monthly GDP’s -0.1% contraction in September as signaling weakness, since services output flatlined, production fell -0.5% m/m and construction ticked up just 0.1%.^[iii] But don’t read too much into such wiggles. Unchanged services follow a 0.1% m/m August rise and an overall upward trend for the sector representing almost 80% of the UK economy. Manufacturing declined -1.0% m/m, leading production lower, but that just partially reversed August’s 1.3% rise, which buoyed production’s 0.5% gain that month. Britain’s industrial production may be mostly trending sideways, like the rest of the industrialized world, but that isn’t anything new. And monthly chop isn’t, either.

Now, with the Budget behind, outlooks for 2025 have brightened, which seems reasonable enough to us. Helping bolster the view British attitudes have moved to a more even keel: October’s UK CPI, out Wednesday, jumped to 2.3% y/y from September’s 1.7%, but coverage sensibly attributed this to an expected rise in the energy price cap—a blip, not a big flip in inflation.

The Sun Also Rises in Japan

Japan’s Q3 GDP also slowed, in this case to 0.9% annualized from Q2’s 2.2% pace.^[iv] Notably, though, household consumption accelerated to 3.7% annualized from Q2’s 2.7% (after four quarters of contraction). This was its fastest since Q2 2022.

The main detractor? Trade. Although exports rose 1.5% annualized, that was a marked slowdown from Q2’s 10.7% gain, which was powered by soaring export services’—read tourism’s—43.0% leap.^[v] In Q3, export services fell -15.7% annualized, as the rush of visitors retreated somewhat. Goods exports, though, sped to 7.9% annualized growth from Q2’s 1.9% (after three quarters of contraction). But with imports up 8.5% annualized—feeding into healthy consumption—net exports (exports minus imports) subtracted -1.3 percentage points from headline GDP. The weak yen seems like the main driver here—helping boost tourism, while adding to import costs—but over time currency moves are mostly a wash.

Japanese business investment fell -0.7% annualized, contrasting with consumer spending.^[vi] The lead up to October’s snap election (and America’s early November vote) perhaps weighed on corporate confidence. But capital expenditures have waffled up and down for over a decade. While hope springs eternal, don’t hold your breath Japan’s listless and lackluster business investment is about to mount a sustained upturn, given politicians’ scant appetite for structural reforms to enable it.

China’s October Data and Stimulus

Timelier, but still backward-looking October data show Chinese growth chugging along. Industrial production rose 5.3% y/y, continuing its trend of around 5% all year.^[vii] Steady factory output, though, is overshadowed by coverage that remains fixated on China’s prolonged property slump, even as authorities move to arrest it, while GDP has grown around their 5% target anyhow.

Now, it looks like those stimulus measures are starting to have some effect. Retail sales accelerated to 4.8% y/y from September’s 3.2%, its fastest this year—and above expectations.^[viii] This was driven by big gains in consumer goods—e.g., household appliances (39.2% y/y), sports & recreation equipment (26.7%), office appliances (18.0%) and communication devices (14.4%)—as trade-in subsidies ramp up from state planners’ 300 billion yuan ($41.5 billion) July “fridges, not bridges” consumer stimulus program. Notably, too, cosmetics sales spiked 40.1% y/y following four months of decline, while vehicle purchases climbed to 3.7% from September’s 0.4% after contracting all year.

Although government stimulus boosting consumption somewhat shouldn’t be surprising, few mention it. In our view, the inordinate focus on China’s real estate downturn—and increasing attention on a potential trade war next year—distracts from its ongoing expansion and positive contribution to global growth. Many act as if the country is deep in contraction, requiring a Keynesian kickstart of sorts. But it actually continues growing near the government’s target rate.

Where Is US GDPNow?

As for America, October’s data were mixed. Industrial production fell another -0.3% m/m from September’s -0.5%, but because the dip was strike and hurricane related, we wouldn’t read much into it.^[ix] Meanwhile, retail sales rose 0.4% m/m on top of September’s 0.8%.^[x] For both, we think trends are more relevant, and they show retail sales picking up and factory output flat—as it has been since 2022. However, although these two output measures receive plenty of attention, they aren’t very representative of the economy as a whole. Industrial production is only about 16% of GDP, while retail sales aren’t inflation adjusted and don’t include most services, which comprise 72% of GDP.^[xi]

To get a sense of the bigger picture, the Atlanta Fed’s GDPNow model incorporates the latest data, factoring them into a real-time GDP estimate for the current quarter. Take it with many grains of salt since we are only one month into the quarter—and it assumes past relationships hold, which isn’t always the case—but Q4 is currently tracking 2.6% annualized growth.^[xii] Of course, the stock market is looking further ahead into next year—and beyond. But this does suggest stocks’ economic driver is healthy as yearend draws near.