China Consumption Story: Year End 2019

Most recent (Q319) data suggest that China’s consumption growth is likely to continue slowing into 2020. Retail sales growth slowed slightly in Q3 following the temporary recovery in auto sales that ticked up retail sales growth in Q2. Both nominal and real growth of household consumption per capita grew slightly in Q3, but this does not signify a recovery. The general slowdown in household consumption growth is poised to continue. The real growth of household income per capita decelerated slightly in Q3 due to weakening labor markets and rising consumer inflation. Downward pressure on the labor market will continue to drag on household incomes and consumption. This said, the employment sub-indices of the November PMI show a slight uptick. It’ll be important to watch if this sustains, as it would indicate stabilizing employment conditions—a positive for consumption. Despite the high topline CPI, low Core CPI growth, coupled with deepening deflation in the industrial sector, means that regulators aren’t likely to tighten monetary policies in response to current CPI readings.