The Westpac MNI China Consumer Sentiment Indicator, hereafter the Westpac MNI China CSI, increased by 2.7ptsin March, printing 114.7 versus 112.0 in February, +2.4% over the month and –2.0% over the year. The March outcome is 5.7% below the long run average. The absolute level of the CSI indicates that Chinese consumers are still relatively anxious about their own personal financial wellbeing and the economy more broadly. However, the pronounced pessimism that dominated much of 2014 has clearly lessened since the October trough, with the shift in the policy stance the proximate cause.
• Four of the five components that go into the calculation of the Westpac MNI China CSI increased from the previous month. The major impulse in the month was a steep uplift in current and expected family finances, which more than corrected their overly weak February readings. Current and forward looking assessments of business conditions all increased, but to a lesser extent than family finances. The post Lunar New Year interest rate cut has clearly out-weighed the announcement of a lower annual growth target in the minds of Chinese consumers.
• A month ago the “current” portion of the CSI was down by 7.7% from a year ago, whereas the “expected” portion was down by a lesser 2.4%. The updated figures are –4.2% and –0.7%. Periods where the forward looking responses are materially stronger than current assessments tend to presage improvement in economy-wide conditions. Genuine turning points tend to have stable or moderately improving current readings coinciding with steeply rising expectations. The jury is thus still out.
• The employment indicator declined by a cumulative 11.3% between May and October, and has since increased by 3.3%. The March reading (–0.1pt from February) is 8.1% below long run average. In absolute terms job security remains in short supply. Consumers are awaiting a more durable pick-up in growth before they fundamentally reassess the job outlook. Given this lukewarm description of labour market conditions, the aforementioned lift in family finances looks even more dependent on the interest rate cut (and to some degree, lower inflation expectations than a month ago).
• The consumers’ attitude towards real estate (see table 3 on page 4) was positive, on balance, following on from the modest cumulative improvement in Nov-Feb. Expectations for house prices gained ground; but the share of respondents reporting it was a ‘good time to buy a house’ edged lower; while fewer consumers nominated domestic real estate as the ‘wisest place for their savings’. Back on the positive side, the proportion of consumers nominating a housing purchase as their primary motivation for saving rose for a fourth month, albeit modestly. The wide gulf between price expectations in the East and the Central & Western (C&W) regions observed late last year has been bridged due to large back-to-back gains in the C&W. Relative to the recent peak, the East is now down by 0.9% versus the C&W at –1.3%. Two months ago, those figures were –2.1% and –10.9%. We will continue to treat the size of the C&W gain with scepticism given the evident imbalances, but the idea that housing has passed the worst is becoming more appealing.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
