Was that it for China's miraculous recovery? While China's economic releases long ago lost any "data" significance and simply represent whatever the politburo wants it to represent, moments ago we had the traditional monthly data dump and it was extremely ugly, with the key items missing badly, and making one wonder if Beijing is no longer eager to convince the world of just how solid the post-covid recovery is but instead is transitioning into a phase that actually reflect the devastating reality.
Here are the highlights:
- Industrial output missed at 4.8%, Exp. 5.2%
- Retail sales not only missed in July but shrank for the 5th months, printing -1.1% Y/Y; vs the Est. 0.1%, failing to recover into the green for the first time since the pandemic began
- Fixed investment came in line, shrinking by -1.6%, same as the -1.6% expected.
- Unemployment came in at 5.7%, unchanged from last month and a completely arbitrary number which captures only whatever Beijing wants it to capture.
Some additional metrics for the YTD period:
- Jan.-July Retail Sales -9.9% Y/Y; Est. -9.8%
- Jan.-July Industrial Output -0.4% Y/Y; Est. -0.4%
- Jan.-July Property Dev. Investment Rises 3.4% Y/Y
- End-July Surveyed Jobless Rate Stands at 5.7%
And some commodity metrics:
- China July Crude Oil Output 16.46M Tons, +0.6% Y/Y
- China July Natural Gas Output 14.2BCM, +4.8% Y/Y
- China July Coal Output 317.94M Tons, -3.7% Y/Y
A quick scroll through the various retail sales categories indicate that restaurant and catering fell 11% (actually a slower pace of decline compared to previous months) and there are also falls in clothing, furniture, household electronics and petroleum. One notable observation from Bloomberg's Ailing Tan: the 12.3% increase in retail sales of automobiles didn’t prop up the headline number, which means that autos are not a good gauge of China’s economic pulse. They have become steadily less correlated to overall economic spending.
As for the "stellar" 5.7% unemployment rates, BofA reminds us that it leaves out about half the workforce, and we know anecdotally that joblessness among migrant laborers is high and likely dragging down consumption.
The data clearly is on the soft soft side with 2 out of 3 metrics missing at a time when China's PMIs suggest a new Golden Age has been unleashed (and thus discredit themselves) while the slide in retail sales is the biggest worry as it indicates that either the Chinese consumer is tapped out or that Beijing wants to indicate to the world that the Chinese consumer is tapped out. Whatever the right explanation, it means confidence isn’t there yet, and that the virus may not be under control after all so Beijing is giving itself some leeway when things turn ugly again.
In response to the disappointing earnings, Chinese stocks eased back although "China’s Nasdaq". the tech-heavy ChiNext is holding onto some of its morning gains, trading up 1%. Why? Same as in the US, investors will think that any mildly disappointing news will prompt policy makers to provide liquidity to the financial system, as Bloomberg cheerfully notes. Indeed, Chinese government bonds are rising for a third day, another sign that investors may be expecting this data to inspire policy makers to provide some liquidity to keep the economy on track (or to continue the stealth QE we noted yesterday). The yield on notes due in a decade is down 1 basis point at 2.952%, the lowest in more than a week.