EN Ireland Professional Investor
Macroeconomic & Geopolitical

U.S. Consumer Holding Up; Global Manufacturing Still Weak

6 September 2019 - 4 min read

The three things you need to know this week: Fed Beige Book cites U.S. consumption holding up well, bad Chinese debts continue to rise and a U.K Parliamentary shakeup amid Brexit.


Fed Beige Book: Federal Reserve districts said the economy expanded at a modest pace through the end of August. The majority of businesses remained optimistic about the near-term outlook despite uncertainty regarding tariffs and trade policy. Consumer spending reports were mixed, although auto sales for most districts increased slightly. Home sales remained constrained in most districts mainly due to low inventory levels, while new home construction stayed flat. Commercial real estate construction and sales activity were steady and leasing rose slightly over the prior period. Manufacturing activity was down slightly from the last report and lending volumes grew moderately across several districts.

China Bad Debts: Reports indicate nonperforming loans in China grew 10% during the first half of 2019 with more small and mid-size companies struggling. Approximately 5% of all lending in China is in or near default. Smaller banks seemed to be disproportionately impacted due to their unequal access to liquidity compared to state- owned banks. Larger institutions are much better positioned to absorb nonperforming loans with minimal impact to profitability given their wider lending margins. However, bad debts continue to rise, with corporate debt defaults expected to set a new record this year.

Brexit Update: U.K. MPs voted by a margin of 327-299 in favor of a bill to block no-deal Brexit. The bill would require U.K. PM Boris Johnson to ask the EU for a Brexit delay until January 31, 2020, if no deal has been agreed by October 19. Johnson’s proposal for a new election on October 15 was also rejected. Opposition parties are divided on a way forward with some calling for an election after October 31 to ensure the no-deal outcome is avoided and to take advantage of Johnson's failure to keep his pledge to leave by the end of October. A no-confidence vote remains a possibility.


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