Fresh from Westpac:
The Westpac MNI China Consumer Sentiment Indicator decreased by 8.5pts from 118.2 in September to 109.7 in October. The Indicator is now 1.1% lower than a year ago and 8.8% below its long run average.This large correction is a somewhat overdue ‘re–set’ for the household sector. While the October survey was conducted against a slightly more stable financial backdrop than was the case in previous months, the flow of information on the real economy has clearly soured. All told, the fact that confidence is now 1.1% lower than a year ago feels about right, whereas the September print of +4.4%y/y felt a bit rich.
Each of the five components of the CSI decreased in October. The largest falls were in ‘business conditions next 12mths’ and ‘business conditions next 5yrs’, reflecting the primacy of the broader economy in the evaporation of confidence. ‘Family finances vs a year ago’ and ‘family finances next 12mths’ fell by 5.3pts and 7.3pts respectively . ‘Time to buy a major household item’ was the most resilient component of the headline at –4.1pts. ‘Current business conditions’ (not part of the headline, but highly correlated with the PMIs & official IP) also fell heavily.
More specific questions on specific spending plans showed large declines in plans for shopping (-7.9%) entertain
ment spending (-6.7%) dining out (–5.7% with a smaller 2.9% decline for western style fast food). Perceived buying conditions showed a broad based decline.The proportion of respondents indicating that their family plans to buy a car in the next 12 months rose to 17.3% from 14.4% in September, which compares to the long run average of 13.3%. The proportion indicating that they had made an online purchase in the last three months fell back to 53.1% from 62.8% in September, which was the highest reading since May 2014. Note that China’s famed “Singles Day”, the equivalent to the US’ “Black Friday” annual online sales event, is coming up on November 11.
The employment indicator declined by 6.7%m/m, to be down 5.7%y/y. That picture is consistent with the continued weakness in the labour–intensive export sector as well as the downward pressure operating on a range of blue collar domestic activities. Furthermore, household inflation expectations moved sharply lower in the month, with a material increase in the proportion of respondents nominating that prices will fall over the year ahead. With an insecure workforce and rising deflationary risks, there is no fundamental impediment to delivering further monetary policy easing in the months ahead.
Consumer attitudes towards real estate were less favourable than in September, but relative to the pessimism pervading the rest of the survey, housing looks very resilient indeed. In terms of the four key indicators, there was a moderation in house price expectations and ‘time to buy’; housing as a ‘motivation for saving’ also fell; while domestic real estate as the ‘wisest place for savings’ increased. This latter factor tempered the degree of the overall move towards risk aversion evident across the rest of the survey.
While it is heartening that real estate exhibited overall resilience in October, we observe that the gulf between the coastal provinces and the hinterlands [in terms of price expectations] has opened up again. A steep decline in the Central & West (C&W) was the key driver, with responses from the East actually improving slightly. That divergence is a reminder of the greater demand–supply mismatch in less wealthy interior cities. It is also consistent with the fact that official data implies that the sales rebound seems to be stalling at a point where price gains are far from geographically universal. In our minds, housing is at an important inflection point and policymakers should be vigilant on this front. A polite request that more than 100% of Friday’s rate cut be passed through to mortgages is an obvious expedient.
Full Westpac wrap here.
