Perhaps Most Western Analysts are Wrong About the 2016 China Outlook

If you follow Wall Street analysts’ economic predictions, you’re likely well aware that a majority see China weakening further in 2016.  Most western analysts see little possibility that Chinese growth will meet the government’s expectation of 6.5%.

At the same time that analysts see a weakening China, many have the American economic growth outlook brightening.

The final data points of 2015 paint a complete opposite picture, with the divergence of the two mattering a good deal for the practice of investment banking this year.  Are the year-end data points correct or are the majority of Wall Street analysts?

Here’s a look at the data points.

China Manufacturing

The last data point of 2015 was manufacturing and non-manufacturing PMIs out of China. Overall, manufacturing activity peaked in July 2014 and has since continually decelerated through the end of 2014 and the first 3 quarters of 2015.

The weakening changed in fall 2015, with the Manufacturing PMI now 5% above its September low of 47.2. This suggests business in China has already bottomed, with the weakness already in the rear view mirror.

1 China MFG PMI

China Non-Manufacturing

Akin to the Manufacturing PMI, the Non-Manufacturing PMI shows growth in China re-accelerating since bottoming in October 2015. Overall, non-manufacturing conditions started decelerating following the May 2014 reading, and continued to decelerate throughout most of 2015. That changed after Halloween with conditions strongly re-accelerating in the past couple of months. Whether the past couple months of readings are transitory anomalies, or constitute a trend, remains to be seen.

It should at least put some doubt on the consensus view that China is, for sure, heading south.  That’s probably not the case.

2 - China Nonmfg PMI

U.S. Initial Claims

Shifting to the U.S. picture, here’s a look at the final 3 most influential economic indicators. The first is Initial Claims. Initial Claims surged 20K to 287K to end the year.

Overall, since bottoming in October 2015, an upward trend has emerged for Initial Claims, something that can’t continue too much longer if analysts’ U.S. economic forecasts are to come to fruition.

ic0915

U.S. Continuing Claims

A similar story, albeit to a lesser degree, is present with Continuing Claims. Continuing Claims have floated higher since bottoming in early November.

CC0915

Chicago PMI

The third year-end point giving a counter prediction to the majority of Wall Street analysts is the Chicago PMI, which came in at a recessionary-like 42.9.

Chicago PMI

Conclusion

Conventional 2016 forecasts have business in China deteriorating further and American conditions re-accelerating. In looking at the final 2015 data points, an opposite picture is painted. Growth in China appears to be reigniting, and economic growth in the States may be peaking.

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