China Retail Sales Disappoint, Despite Expected Golden-Week Boost

Amid sudden domestic defaults, liquidity shortfalls, a soaring yuan, and overseas economics lockdowns, tonight’s smorgasbord of data is expected to show a continued recovery in China’s economy (after a disappointing Q3 GDP and PMI), as US data begins to falter.

Source: Bloomberg

The strongest yuan in well over two years is likely not helping the export situation…

Source: Bloomberg

But, despite the massive credit impulse, China’s engine of growth remains relatively lackluster as it appears whatever credit is being created is filling holes and being put to productive (multiplier-driving) use in the broader economy…

Source: Bloomberg

So, the question for tonight is, has the slowdown in the rest of the world started to impact China’s rebound or is a domestic revival fueling a ‘virus-free’ return to normal in the communist nation? Simply put, all eyes will be on retail sales…

Interestingly, right before the bulk of the data, China Home Prices printed a disappointing slowdown (though as can be clearly seen, prices haven’t actually fallen on MoM basis since early 2015)…

Source: Bloomberg

One thing to note is that the nationwide eight-day Golden Week holiday likely pushed October retail sales up by 5%, and on the other side of the coin, the longer-than-usual Golden Week holiday cut into working days (potentially impacting industrial production)

Here’s the rest of the data:

  • China Industrial Production YTD MEET +1.8% YoY vs +1.8% exp vs +1.2% prior

  • China Retail Sales YTD MEET -5.9% YoY vs -5.9% exp vs -7.2% prior

  • China Fixed Asset Investment YTD BEAT +1.8% YoY vs +1.6% exp vs +0.8% prior

  • China Property Investment YTD BEAT +6.0% YoY vs +6.0% exp vs +5.6% prior

  • China Surveyed Jobless Rate MEET 5.3% vs 5.3% exp vs 5.4% prior

Most notably the jobless rate is back at pre-COVID levels…

Source: Bloomberg

However, the biggest headline of the night is the disappointment in year-over-year retail sales, rising 4.3% YoY vs +5.0% expected (though accelerating over September’s +3.3%)…

Source: Bloomberg

Bloomberg reports the retail sales break down shows petroleum was down by 11% but the other categories were all positive. While restaurant and catering grew 0.8% there were big gains for food (8.8%), beverages (16.9%), clothing (12.2%) and cosmetics (18.3%) among others.

The supply side of the economy remains strong from the looks of things, but the consumer failed to live up to economists’ expectations.

Except, elsewhere in Asia tonight, Japan’s economy rebounded more strongly than expected from its record crash during the pandemic as businesses reopened, trade roared back and government stimulus helped fuel a jump in consumer spending. Gross domestic product grew an annualized 21.4% in the three months through September from the prior quarter, the Cabinet Office said Monday, reporting the fastest growth since 1968. Economists had forecast an 18.9% expansion.

Source: Bloomberg

Finally, we note that China’s economy is still expected to grow by 2% in 2020 and 8% in 2021 – a sharp contrast to other major economies across the region, where most are expected to contract sharply.