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US Services

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What's going on?

The US’s economy is vastly outperforming those of China and Europe, but some economists are questioning how long it’ll last…

What does this mean?

Tuesday’s services industry (think: non-manufacturing) data is exemplary. In the US, services activity is still expanding, albeit less than forecast. Chinese growth is lower and slower – but it’s growth nevertheless. In the eurozone, however, activity in the services industry in January barely grew at all.

Some economists are worried that investors might get complacent: last week’s better-than-expected US jobs report, for instance, offers a positive panorama of the economy’s strength in the rear-view mirror. But when directly surveyed, American consumers say their confidence is tumbling – a potential indicator of the future shape of the economy, since concerned consumers may trim spending and businesses may correspondingly reduce investment.

Why should I care?

Zooming out: In the UK, it’s happening already.

For most of last year, the British economy grew at a better pace than predicted. But uncertainty brought about by the country’s forthcoming exit from the European Union caused consumer confidence to gradually decline. Now, data out on Tuesday shows that activity in the UK’s all-important services sector (which makes up 80% of its total economy) hardly grew at all in January. Limp spending led businesses to cut jobs, in contrast to the manic additions Stateside – and some analysts now think the UK’s economy is at risk of shrinking over the full first quarter of 2019.

The bigger picture: The US can only go it alone for so long.

Slowing economic growth elsewhere in the world will eventually impact the US. Investment manager Eurizon estimates that China is responsible for 15% of the US economy and 35% of Europe’s. If China’s economy continues to slow (dragging Europe along with it), America might find it’s built up a head of economic steam that overestimates global demand. Still, the ball’s partially in the US’s court: trade negotiations with China are ongoing.

Originally posted as part of the Finimize daily email.

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