China: Growth at 6yr low; Younger Aussies more upbeat

Chinese economic data; Consumer confidence

• Chinese economic data: The Chinese economy grew at a 7.0 per cent annual pace in the March quarter – the slowest growth rate in six years.
• Retail sales rose at a 10.2 per cent annual rate in March – the slowest growth rate in nine years. The result was below forecasts (+10.9 per cent).
• Production: Industrial production rose at a 5.6 per cent annual rate in March, below the forecast average (7.0 per cent).
• Investment: Urban investment rose by 13.5 per cent in three months to March compared with a year ago (forecast 13.9 per cent).
• Consumer sentiment: The Westpac/Melbourne Institute index of consumer confidence fell by 3.3 per cent in April to 96.2. A reading of 100 is the dividing line separating optimism from pessimism.
• Young people (18-24 years) are more optimistic than other demographics with the index, up 22.0 per cent to 143.4. Across the other demographics: 25-44 years (index 91.2, down 12.3 per cent); 45 years plus (index 92.3, down 1.1 per cent). The survey was conducted April 7-12.

What does it all mean?

• The Chinese economy will grow at a slower pace in coming years as the economy gets bigger and matures. That is a given. All economies have followed that path as they have industrialised. The important point is that the composition of growth becomes more balanced over time with household spending being a bigger driver as the benefits of industrialisation are spread across the Chinese people.
• Certainly there are clear signs that the Chinese economy is seeing slower growth rates across an array of sectors. But importantly inflation remains contained and asset bubbles are not a significant threat. The key for Chinese authorities is to ensure that growth remains robust enough to create employment. At present the jobs growth in the fast expanding services sector is being offset by jobless in manufacturing.
• Encouragingly Chinese policymakers remain optimistic but vigilant. Speaking last week the Chinese Premier Li said that “the national economy is running smoothly, but downward pressure continues to grow”. No doubt if growth slows substantially authorities will focus on more stimulatory measures. Interestingly the Premier did call for significant reform in the northeast (mining and heavy industry) and a focus on infrastructure projects.
• It shouldn’t be forgotten that the world’s second largest economy of 1.3 billion people is still growing at 7 per cent each year – an impressive achievement. And as the Chinese Premier said economic development had entered the “new normal”.
• Aussie consumers remain downbeat with concerns about the state of the economy and the slide in the Australian dollar dampening sentiment. In addition given the survey was done in midst of the Reserve Bank Board meeting and it seems some consumers would certainly have been disappointed interest rates were not cut again in April. Interestingly the demographic that clearly shifted to a pessimistic outlook was the age group 25-44 years (which would be most of the young home owners with a mortgage). Confidence levels amongst this group falling by 12 per cent to decidedly pessimistic territory. In contrast the 18-24 age group were euphoric with confidence levels surging to 143.4. Clearly the long weekend was a big hit amongst this group.
• The monthly consumer confidence data is now merely useful as a check against the timelier weekly survey. The ANZ-Roy Morgan survey has the same number of survey respondents as the monthly series, has been running over the same number of years and covers the same questions but is conducted each week. And what is clear from both surveys is that confidence levels are certainly nowhere near euphoric.
• The Reserve Bank would be hoping that in coming months Aussie consumers will become more upbeat and be keen to put further savings to work rather than leaving the money in bank or paying of debt. CommSec expects a further rate cut in May.

What do the figures show?

Chinese economic data

• The Chinese economy grew at a 7.0 per cent annual pace in the March, the slowest growth rate in six years, down from the 7.4 per cent annual growth rate in the December quarter. The economy grew by 1.3 per cent in the March quarter, down from 1.5 per cent in the December quarter and below the forecast estimate of 1.4 per cent.
• Industrial production rose at a 5.6 per cent annual rate in March, below the forecast average (7.0 per cent).
• Production of pharmaceutical goods grew at an 11.4 per cent annual pace in March with general equipment up 24 per cent and steel products up 3.6 per cent.
• Crude steel production fell by 1.2 per cent in March compared with a year ago.
• Retail sales rose at a 10.2 per cent annual rate in March – the slowest rate in nine years. The result was below forecasts (+10.9 per cent) and down from the 10.7 per cent annual rate in January-February.
• In real terms, spending was up 10.2 per cent in March.
• Sales of telecom equipment rose at a 37.0 per cent annual rate in March with building materials up 21.2 per cent, furniture up 20.3 per cent and home appliances up 16.2 per cent.
• Urban investment rose by 13.5 per cent in three months to March compared with a year ago. The result was below forecasts of a 13.9 per cent increase and below the 13.9 per cent growth recorded for the in the first two months of 2015.

Consumer sentiment:

• The Westpac/Melbourne Institute index of consumer confidence fell by 3.3 per cent in April to 96.2. The confidence index is down 3.5 per cent on a year ago.
• The current conditions index rose by 0.1 per cent in April, while the expectations index fell by 5.7 per cent.
• Four of the five components of the index fell in April:
• The estimate of family finances compared with a year ago was down by 7.4 per cent;
• The estimate of family finances over the next year was down by 0.7 per cent;
• Economic conditions over the next 12 months was down by 6.7 per cent;
• Economic conditions over the next 5 years was down by 10.2 per cent;
• The measure on whether it was a good time to buy a major household item was up by 5.9 per cent.
• Gender & demographics: Men (index reading of 101.9, up 1.6 per cent) are still more optimistic than Women (90.9, down 8.0 per cent). Young people (18-24 years) are more optimistic than other demographics with the index, up 22.0 per cent to 143.4. Across the other demographics: 25-44 years (index 91.2, down 12.3 per cent); 45 years plus (index 92.3, down 1.1 per cent).
• State sentiment levels: NSW (down 0.1 per cent), Victoria (down 16.8 per cent), Queensland (down 3.6 per cent), Western Australia (up 18.4 per cent) and South Australia (up 7.3 per cent).
• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.
• China is Australia’s major trading power and the biggest contributor to growth in the global economy, so the latest results have ramifications for Australia’s export growth, national income and even the Australian dollar.
• The Reserve Bank will be disappointed by the latest round of international and domestic data. The Central Bank has maintained an easing bias and CommSec expects the Reserve Bank to discuss the merits of another rate cut at upcoming meetings with another rate cut has been pencilled in for May.

What is the importance of the economic data?

• China’s National Bureau of Statistics releases its monthly economic statistics around mid-month. Quarterly GDP data is released around the 16th of January, April, July and October. China’s Customs Office releases trade data, and the People’s Bank of China releases financial statistics, around the 10^th of each month. China is Australia’s largest trading partner and changes in the Chinese economic have major implications for the Aussie economy.
• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.

What are the implications for interest rates and investors?

• Westpac and the Melbourne Institute release the Index of Consumer Sentiment each month. According to Melbourne Institute: “The survey of consumer sentiment was first undertaken in 1973 and was conducted on a quarterly basis until 1976, a six-weekly basis from 1976 to 1986, and has been conducted monthly ever since.” Confident consumers may be more inclined to spend, especially on major items.