MST: Is China the Last Growth Pillar Left Standing?

The global economy is moving into a phase where surface metrics no longer align with underlying mechanics. A closer reading of the latest data reveals a common thread: demand is softening everywhere, but the symptoms differ by region . The U.S. shows signs of late-cycle dislocation, Europe is operating on life support via credit, and China, contrary to market sentiment, may emerge as the most balanced—if still vulnerable—engine.

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🇺🇸 United States: Consumer Strength Can’t Mask Output Slippage

March's 0.7% rise in personal spending and real consumption looks like resilience—but it’s happening against a -0.3% Q1 GDP print and an alarming -2.5% drop in real final sales. That disconnect is real. Consumer demand added around $133B annualized (0.7% of a ~$19T consumption base), while overall GDP shrank by roughly $52B. We're watching a household sector overextending into a softening macro environment.

Job creation is slowing. ADP payrolls added only 62K vs. 114K expected, while JOLTS job openings dropped by 288K. The labor market is softening on the margins, even as consumers keep spending. But with confidence down sharply to 86.0 and income growth of just 0.5%, the spending trend looks fragile. Pending home sales jumped 6.1%, but mortgage apps fell 4.2%—a housing contradiction that usually precedes price volatility.

Inflation is also muddled. Q1 core PCE came in hot at 3.5%, yet March’s monthly PCE was flat. Inventories rose and wholesale volumes look heavy. Combine that with the Atlanta Fed’s GDPNow slashed to -2.7% for Q1, and it’s clear the U.S. isn’t in a soft landing—it’s stalling under the weight of contradictory forces.

🇪🇺 Europe: Credit Fuels Stability, Not Growth

Europe just barely dodged a triple-dip recession. German GDP grew 0.2%, Italy hit 0.3%, and the bloc printed 0.4% QoQ. But confidence isn’t following. The Eurozone business survey fell to 93.6, and industrial sentiment worsened to -11.2. France’s consumer spending cratered -1.0%, and retail inflation signals from Spain and Germany remain sticky.

Private sector loans rose 1.7% YoY and corporate lending was up 2.3%. That’s €140B in fresh lending (annualized) into an economy still unsure how to deploy it. Meanwhile, consumer inflation expectations jumped to 29.6% from 24.5%—a 20% leap in just a month. That complicates the ECB’s path forward.

At the producer level, disinflation is dominant. Italian PPI fell -2.4% MoM, and French PPI dropped -0.6%. This divergence—consumer prices sticky, input costs falling—hints at margin compression across industry. Europe’s recovery is less about momentum and more about not slipping further. It seems the region is in a long stall.

🇨🇳 China: Recovery Narrative Cracks

China’s April composite PMI fell to 50.2, down from 51.4, with the official manufacturing PMI sliding to 49.0. That alone implies broad industrial softness. Using a baseline industrial GDP weight of 31%, a PMI drop of 1.5 points could translate to a drag of ~0.4pp on quarterly growth—erasing roughly ¥300B ($41B) in expected output.

Caixin’s private manufacturing PMI held at 50.4, but this divergence underscores a two-speed recovery: larger SOEs stagnating, mid-sized exporters holding. Services also wobbled—non-manufacturing PMI dropped to 50.4—and with tourism and household activity flatlining, the consumption rebound is losing steam.

The export engine isn’t compensating. New orders fell, and global demand remains weak. With inflation hovering near zero and PPI still negative, pricing power is eroding. Structural demand remains tepid despite fiscal easing. Without a step-change in consumer stimulus or external tailwinds, China may drift below its 5.0% growth target.