Commentary Directory

Chinese retail sales grew 0.3% MoM which lead to the annual gain in sales accelerating to 4.6% YoY in August, up from 2.5% YoY in July. This is the highest since March, April, and May where there was a significant base effect pushing the YoY numbers higher. Indeed, for the year-to-date period, sales are up 7.0% YoY versus the previous year-to-date period which includes months of the economy in restriction. Food sales are the strongest sales category, up 12.4% YoY in August. Some categories are starting to show signs of improvement after a dismal Q2. Clothing sales are up 4.5% YoY, furniture signs are up 4.8% YoY, and communication equipment up 8.5% YoY. On the other hand, there are several categories that are still negative. Building materials (-11.4% YoY), household appliances (-2.9% YoY), and office supplies (-8.4% YoY) all refuse to bounce back in the post-COVID rally.

The improving growth rate of retail sales is generally a good sign that the Chinese economy is trying to get back on track, but the bad news is that growth is strongly affected by the surge in food and beverage revenue (partly affected by food inflation). Nevertheless, the category of sales doesn’t matter in the discussion of economic growth, and the continued improvement in sales will help to stabilize weak GDP in Q3 if it can continue. Overall, it seems that the negative categories are related to weakness in sentiment caused by the struggling real estate sector, household appliances and building materials specifically. The Chinese government has continually sought to address credit availability in order to restore confidence, but the struggles persist. However, sales data in August can, in general, by considered a positive development.