The Westpac MNI China Consumer Sentiment Indicator fell 3.6pts to 111.3 in February, down from 114.9 in January. The CSI has retraced most of the gains over the previous 3mths to be just 1.4% above the 9yr low recorded in October last year.
This is a disappointing result coming after previous reads had been suggesting that consumer confidence was seeing a sustained improvement despite renewed turmoil in financial markets. The February survey shows continued weak conditions and elevated job-loss fears again weighing on the consumer mood with a notable weakening in spending intentions and a continued uneven picture around real estate.
Four of the five components of the CSI fell in February. The largest fall was for ‘business conditions, next 5yrs’, down 6.7%. With ‘business conditions, next 12mths’ up 1.6% vs January, the durability of any near term recovery is clearly a concern. The ‘time to buy a major household item’ component also recorded a relatively sharp 4.7% drop, with the sub-index falling below 100 for the first time since the survey begain in April 2007. Views on ‘family finances’ showed a smaller deterioration, ‘family finances, next 12mths’ down 3.7% and ‘family finances vs a year ago” down 1.3% with both sub-indexes still above their February 2015 levels. ‘Current business conditions’ (not part of the headline, but highly correlated with the PMIs & official IP) recorded a 4.4% fall but is still 3.1pts above the record low posted in October last year.
Chinese consumers remain particularly concerns about labour market conditions. The employment indicator fell a further 3.6% in February to be down 7.9% in the last two months. The indicator is slightly below its October reading and back at the lowest level since the 2008 global financial crisis. Household inflation expectations rose 2.8% to be around average levels.
Consumer attitudes towards real estate deteriorated in February with the housing composite down 2.1% to a 2yr low. House price expectations and assessments of ‘time to buy’ both dropped significantly, the latter to a 3½yr low. The proportion nominating real estate as the ‘wisest place for savings’ remained steady but there was a notable pull-back in proportion nominating house purchase as a ‘motivation for saving’ with a notbale rise in those citing ‘future job loss’.
Expected purchasing plans and perceived buying conditions saw a broad based deterioration in February with all indicators well below their long run averages. Expenditure plans for shopping fell 3.7% while those for entertainment and dining out both declined about 2.8% Consumer assessments of buying conditions showed particuarly big pull-backs for major household items (–4.7%) and ‘other appliances’ (–3.4%).
The setback to sentiment comes at a delicate time for the Chinese economy. With growth hitting a 7yr low in 2015 and key sectors still struggling, improving consumer confidence had been one of the few promising signs that domestic demand was regaining some traction. That is now less clearly the case. The fall in spending intentions is particularly disappointing heading into the Lunar New Year holiday period. At this stage of the cycle, any loss of momentum clearly raises the risk that growth is weaker for longer.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
