China's data dump is weak, with the exception of retail sales


China’s data dump of industrial production, urban fixed asset investment and retail sales numbers has followed a predictable pattern in October with weakness in industrial data largely offset by strength in consumer spending.

From a year earlier industrial production increased by 5.6%, missing expectations for growth of 5.8%. It was also below the 5.7% level seen in September.

Urban fixed asset investment increased by 10.2% in January to October compared to the same period a year earlier, in line with expectations but below the 10.3% pace seen previously. It is now growing at the slowest annual pace in over two decades.

Helping to offset the weakness in industrial production and fixed asset investment, retail sales accelerated, increasing by 11% from a year earlier. The reading was ahead expectations for an increase of 10.9%, the same level seen in September. It was the fastest annual increase recorded since December 2014.

The figures today are a continuation of the trend seen recent Chinese economic data, both in October and throughout the course of the year.

China is managing an economic transition as previous growth drivers of industrial production are falling away and consumption measures, like retail activity and services, are picking up.

As was the case in August and September the government’s manufacturing PMI gauge held in contractionary territory in October, sitting at 49.8, while the separate Caixin-Markit survey, focused on smaller manufacturing firms, came in at 48.2, an improvement on the 47.2 figure of September but still in contractionary territory.

Trade data for October also disappointed with both exports and imports falling at a faster pace in the 12 months to October than what the markets had anticipated.

Fitting with the weak industrial and trade picture, inflationary pressures also undershot expectations during the month. Consumer prices rose just 1.3% in the year to October, weaker than the 1.6% increase of September and below expectations for a gain of 1.5%. Indicating that upstream price pressures remained non-existent, producer prices skidded 5.9%, the 44th consecutive month that an annual decline had been recorded.

While the industrial data continued to weaken, China’s new growth engines – services and consumption – bucked the bearish trend.

The government’s non-manufacturing PMI report, focused largely on the nation’s services sector, held in expansionary territory at 53.1 while the separate Caixin-Markit services PMI gauge jumped to 52.0 from 50.5 level of September, marking the fastest expansion seen since July.

Chinese stocks have responded negatively to the news with the benchmark Shanghai Composite index currently down by over 0.8%. Outside of China, and perhaps reflective of view that the data merely reinforces what the markets already know, the reaction has been close to non-existent. China sensitive currencies such as the Australian and New Zealand dollars have held their early session gains, sitting up 0.5% and 0.8% respectively. Of those stock markets that are still trading, the Japanese Nikkei, South Korean KOSPI are Hang Seng in Hong Kong are all trading flat.

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