U.S. Slows While China Rebounds

William Sterling, Ph.D.


The repercussions of COVID-19 policies and fluctuating economic conditions worldwide have rattled consumers and central banks alike. While U.S. economic data remains mixed, with weak retail sales, a robust but easing labor market, and stubborn core inflation, China’s first-quarter GDP beat expectations.


Banking Fears Down, Rate Expectations Up

In the fallout of the pandemic economy, measures that helped boost consumer confidence and increase investor appetite in the U.S. have faded. Instead, there are now ongoing concerns about inflation and rising interest rates. U.S. consumers are hitting the proverbial brakes. Retail sales have been on a steady decline since January and may continue to soften in response to rate hikes by the Federal Reserve aimed at curbing inflation.  

First Quarter Consumer Spending Front-Loaded in January
(U.S. Retail Sales, MOM Percent Change, SA)

Source: GW&K Investment Management, Bloomberg, and Macrobond

Beating the Odds

Meanwhile, in China, where zero-COVID policies stalled the economy for far longer than in the U.S. and other Western economies, the pace of economic gains has exceeded expectations. After COVID restrictions were lifted late last year, China’s Q1 GDP beat expectations at 9.1% annualized. The upward momentum in the Chinese economy has been reinforced by the government’s implementation of several measures including infrastructure spending and tax cuts. Unlike the U.S., March retail sales in China rose 10.6% year-over-year confirming a consumer-led recovery. 

China’s March Activity Data Confirm Recovery
(Retail Sales and Industrial Production)

Source: GW&K Investment Management and Macrobond

A Complex Outlook

The pandemic created unique economic challenges. While the first quarter has been mixed for the U.S., China is rapidly rebounding. This divergence seems likely to continue this year as tight Fed policy continues to restrain U.S. growth while Chinese policymakers continue to support a consumer-led recovery. 

Past performance is not a guarantee of future results.


Investing involves risk, including possible loss of principal. There is no guarantee that these investment strategies will work under all market conditions, and each investor should evaluate their ability to invest for a long term, especially during periods of downturns in the market.


This does not constitute investment advice or an investment recommendation.


This represents the views and opinions of GW&K Investment Management. It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.


Data is from what we believe to be reliable sources, but it cannot be guaranteed. GW&K assumes no responsibility for the accuracy of the data provided by outside sources.


© Copyright 2023 AMG Funds LLC. All rights reserved.



William Sterling, Ph.D.


PUBLISHED: May 12th, 2023
2 Min Read

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