All Quiet On the U.S. Front …
Once again this week we were a bit light on data due to the government shutdown. So we the reports on the Consumer Price Index, Housing Starts & Building Permits, Industrial Production and the Index of Leading Economic Indicators have all been delayed.
So what we’re left with is the latest on the state of the U.S. job market…
Last week, jobless claims fell 15,000 to a seasonally adjusted 358,000. The four-week moving average for new claims, which evens out week-to-week volatility, rose 11,750 to 336,500. Economists had expected this measure to fall to 335,000 last week, though it’s hard to know how accurate the official numbers since California continues to deal with computer glitches and other temporary factors like the government shutdown. So we’ll likely have a better view of the jobs market in a few weeks when some of these temporary factors are ironed out.
…But China’s GDP Report Speaks Volumes
But while U.S. government agencies are still in the process of picking up where they left off, the economic news continues to roll in from around the world. In particular, China’s Gross Domestic Product (GDP) report—the broadest measure of economic growth—is dominating headlines today.
In the third quarter, China’s economy grew 7.8% over Q3 2012. While the country has been no stranger to 10% annual growth in recent years, this is the fastest rate the country has seen in 2013. The latest data, which lived up to economists’ estimates, also means that China is likely to reach its annual growth target of 7.5%. However, this growth doesn’t come without costs.
For years, China’s exports have fueled double-digit growth. However, the country is now transitioning to a consumer-driven economy as it becomes more developed. So consumption accounted for 46% of China’s economic growth this year so far. This is still well below the U.S. economy, which owes about two-thirds of its growth to consumption, and China’s gains also came with ballooning consumer debt. Meanwhile, investment accounted for 56% of China’s growth over the past nine months, much of which was in the property sector.
Here is the key takeaway for investors. China remains an economic hotspot, but there are forces brewing under the surface that we all need to note. I still believe that China is home to some amazing companies that deserve a closer look, but because China’s economy is still transitioning, these opportunities are perhaps best suited to more adventurous investors. So before you load up on Chinese stocks, I recommend that you run each potential buy through my Portfolio Grader stock screening tool.
P.S. If you’re looking for more targeted advice on where to invest in China, I list several premium Chinese companies in my Ultimate Growth newsletter that have been really leading the way. I also just added some other larger names to my Blue Chip Growth newsletter.