Market Sentiment Tracker: Consumption Is Holding Up Without Real Income Growth

This week the focus is on China that had a considerable bullish tilt. U.S. continues to show mixed data points while European countries struggle with weakened consumer confidence. The issue of Greenland warrants more discussion - I will write about it further. For now here is the latest market sentiment from U.S., Europe and China

The U.S. data shows a rare combination: demand indicators remain firm while income and investment signals soften at the same time. Retail sales rose 0.6 percent month over month and existing home sales increased to 4.35 million, indicating that transaction activity is still occurring. At the same time, real earnings fell 0.3 percent month over month and building permits dropped sharply by 13.1 percent. This combination suggests activity is being carried by turnover rather than expansion. What is often missed is that turnover-driven activity does not generate the same forward momentum as investment-driven growth. Households are still spending, but income growth is not reinforcing that behavior. Firms are still selling, but new capacity is not being added. Mortgage applications surged 28.5 percent week over week, yet construction activity failed to respond. The implication is that the U.S. economy is functioning through utilization of existing assets rather than creation of new ones. That keeps growth stable in the near term but weakens its durability if conditions tighten even modestly.

European data highlights a disconnect between output stabilization and confidence formation. GDP and production readings improved modestly, with UK GDP rising 0.3 percent month over month and industrial production turning positive year over year. However, construction output continued to fall, down 1.3 percent month over month in the UK and negative year over year. This split suggests firms are meeting current demand without committing to future capacity. Consumer and fiscal signals reinforce this cautious stance. French government finances deteriorated further, with the budget balance widening to minus 155.4 billion, while consumer confidence indicators across major economies remained weak. What is rarely discussed is that Europe is not failing to recover from contraction, but failing to generate conviction. Activity is sufficient to avoid recession, but insufficient to alter expectations. 
 

China’s data shows strong policy-driven credit delivery alongside weak domestic absorption. New loans reached 910 billion and total social financing exceeded 2.2 trillion, clearly signaling active support. Money supply growth also accelerated, with M2 rising 8.5 percent year over year. These figures confirm that liquidity constraints are not the binding issue. Trade data reveals where that liquidity is going. Exports grew 13.3 percent year over year, while imports increased only 4.6 percent, producing a larger trade surplus. This gap indicates that production is finding external demand more readily than domestic demand. The under-discussed point is that credit expansion is supporting output without pulling in consumption or investment at home. That limits multiplier effects and reduces spillovers to trading partners. China is stabilizing activity, but the data shows stabilization without internal demand reacceleration, which fundamentally changes its role in supporting global growth.