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Chinese consumer sentiment edged down in August in a broad based deterioration which saw declining optimism toward personal finances, business conditions and the job market. On a more optimistic note, consumers reported a slight improvement in their willingness to spend on big ticket items. It is worth highlighting that respondents in the Northeast and Southeast of China experienced a noticeable deterioration in August due in part to the recent massive flooding.
The Westpac MNI China Consumer Sentiment Indicator decreased 2.2% to 111.5 in August from 114.0 in July, leaving sentiment at the lowest since February 2016. While sentiment remained above the breakeven 100 level, meaning that optimists outnumbered pessimists, confidence was below the 12-month average of 114.4 and the series average of 119.7.
Four of the five components that contribute to the Westpac MNI China Consumer Sentiment Indicator fell between July and August. Only Durable Buying Conditions increased on the month. Both current and expected measures of household finances pulled back, with the latter declining to the lowest level in the survey’s nine-year history. Consumers also turned less optimistic about future business conditions. The Business Conditions in One Year indicator moved back to the level seen at the start of the year, while prospects for the business environment in five years worsened slightly.
Other data highlighted the growing unease among Chinese consumers. A deterioration in the outlook for households’ balance-sheets was accompanied by increased pessimism about expectations for jobs. The Employment Outlook Indicator edged further into contraction territory and declined to a six-month low of 92.2 in August.
While consumers’ assessment of the current level of their personal finances worsened, there were positive signals across the spending data on big ticket items. The Durable Buying Conditions Indicator rose 2.1% on the month following a 2.9% decrease in the previous month. There was also a significant increase in car buying sentiment with the Car Purchase Expectations Indicator moving back above the 100 level to the highest since April. However, spending plans for discretionary services such as dining out, shopping and entertainment scaled back in August, suggesting that while large household outlays remain resilient, smaller scale items are currently not on the menu.
Commenting on the latest survey, Senior Economist of MNI Indicators Andy Wu said, “August’s decline in consumer sentiment is consistent with the recent moderation in the official activity data. Alongside a lower reading from our sister China business survey in August, it raises questions about whether overall growth momentum in the second half of the year will be weaker than we initially expected. More worryingly, the weakness in our employment outlook indicator is a growing source of concern and clouds the outlook for consumer spending. Against this backdrop, we believe the authorities will continue to underpin growth via new targeted easing measures in the near term.”
Westpac Senior Economist Matthew Hassan said, “Some of the August sentiment decline may be due to one-off events, with significant developments both in China (severe flooding in northern and central China) and abroad (‘Brexit’). However the overarching theme is still of a clear loss of confidence since earlier in the year. Chinese consumers are less convinced that business conditions are improving and look to be bracing for another hit to their finances. To date the weakness in sentiment is only giving up previous gains. But given the importance of consumer demand as a driver of Chinese growth at the moment, any loss of momentum is concerning and a threat to what is still only a patchy improvement in the wider economy. Restoring confidence will be critical to shoring up demand near term and may also be critical in ensuring a more durable recovery emerges down the track.”
