Economic funk

China’s stats bureau published the monthly econ data for July on Tuesday.

The headlines:

• Retail sales rose 2.5% y/y in July, down from 3.1% y/y growth in June.
• Fixed asset investment (FAI) rose 1.2% y/y in July, compared with 3.1% y/y growth in June.
• Value-added output at industrial firms rose 3.7% y/y in July, versus a 4.4% y/y increase in June.

Expectations weren’t high, but the data still disappointed.

• Growth figures across the board came in below consensus forecasts.

The retail sales numbers are the nail-in-the-coffin for hopes that consumption will power China’s post-COVID recovery:

• Retail sales in July fell 0.1% m/m after seasonal adjustment.

The data also points to broader private sector malaise:

• Private FAI fell 2.3% y/y in July, compared with a 0.6% y/y contraction in June.

A higher unemployment rate suggests that private firms – the main source of new jobs – are reducing hiring:

• The urban unemployment rate rose from 5.2% in June to 5.3% last month.
• Tellingly, the NBS announced that it has stopped publishing the youth unemployment rate.

So far this year, private sector weakness has been partially offset by increased state spending, but that wasn’t the case in July:

• Infrastructure FAI slowed to a 15-month low of 5.3% y/y, down from 10.1% y/y growth in H1.

Get smart: It's now an open-and-shut-case that officials are not doing enough to support the economic recovery.

Get smarter: Today’s rate cut suggests that Beijing is aware of this.

• But cheaper credit alone is not going to solve China’s economic funk.