Chinese consumer pukes

From Westpac:

• The Westpac MNI China Consumer Sentiment Indicator fell a further 2.2% in August to 111.5 down from 114.0 in July and 115.9 in June. The Indicator is now back near its most recent low in February and close to the 9yr low seen in October 2015.

• Note that the survey was in the field over the first half of August and may have been impacted by flooding in recent months which has affected 24 of China’s 36 provinces.

• Four of the five components declined in August. Views on the short term outlook recorded the sharpest pull-back, ‘family finances next 12mths’ down 7.8% and ‘business conditions, next 12mths’ down 4.7%. Both components saw particularly sharp falls in China’s North East where recent weather events have been more severe. Assessments of ‘family finances vs a year ago’ recorded a milder 1.1% decline with views on ‘business conditions, next 5yrs’ recording a similarly sized 0.9% dip but still holding at a notably weaker level, 8ppts below its historical average. The ‘time to buy a major item’ component was the only one to rise, posting a 2.1% gain.

• Chinese consumers were also markedly more downbeat on current business conditions: the ‘business conditions vs a year ago’ index down 5.5%, dropping back below average after hitting a 2½yr high in July (note that this index is not part of the headline composite but is highly correlated with the other measures of industrial activity). Job security recorded a similar deterioration, the employment indicator sinking 6.2% to be nearly 12ppts below its long run average.

• Consumer attitudes towards real estate were more mixed in the month. The housing composite edged up 0.2% nationally and remains slightly above its long run average. However, within the measure, house price expectations were trimmed back (–0.6%) and the proportion nominating real estate as the ‘wisest place for savings’ declined 3ppts, moving back from to an 18mth high. Fewer consumers reported ‘house purchase’ as their primary ‘motivation for saving’ (8.6% down from 11%). The main positive was around ‘time to buy’ where assessments were moderately firmer (+2.1%).

• Consumers’ reported purchasing plans also fell back sharply in August from promisingly positive levels in June-July. Perceived buying conditions held up better, improving in many cases and being generally at or slightly above averages.

• Some of the August sentiment decline may be due to one-off events. However the overarching theme is still of a clear loss of confidence since earlier in the year. Chinese consumers are less convinced that business conditions are improving and look to be bracing for another hit to their finances. To date the weakness in sentiment is only giving up previous gains. But given the importance of consumer demand as a driver of Chinese growth at the moment, any loss of momentum is concerning and a threat to what is still only a patchy improvement in the wider economy. Restoring confidence will be critical to shoring up demand in the near term and may also be critical to ensuring a more durable recovery emerges down the track.