So, if you are looking for a reason for the US Federal Reserve to sit and do nothing about interest rates at this week’s meeting, is it the weak economic data for August from China, culminating in the less than impressive reports for August?
The trade figures last week were weak, especially imports, inflation was mixed, with manufacturing remaining in the grip of intense price deflation for a 42 month, and yesterday the production, investment and retail sales figures confirmed the country’s economy has slowed.
In fact imports (down 14% last month) fell for a 10th month in a row (with import volumes down sharply) and producer price deflation hit an annual rate of 5.9% in August, which means many businesses are paying real interest rates of 8% – 9% or more.
China’s investment and industrial output were weaker than expected in August, raising the possibility that third-quarter economic growth will dip below 7% for the first time since the GFC.
Factory output rose 6.1% last month from August 2014, less than the 6.4% forecast by the market percent expected but up from July’s 6.0%.
Growth in fixed asset investment slowed further in August – down to 9.2% year on year (from 10.3% previously) – the lowest rate of growth since December 2012.
But over the first eight months of the year the 10.9% growth rate was the lowest growth rate for nearly 15 years.
But on the plus side, new lending was stronger in August – almost 13% higher in year-on-year terms. However, it remains down around 10% over the first eight months of 2015 from the same period of 2014.
Annual growth in real estate investment continued to slow, falling to a rate of just 3.5% in the eight months to August, down from the 4.3% rate in the January-July period and the lowest rate for more than six years.
While home sales and prices are slowly recovering from a slump last year – the area of property sold rose at a slightly faster pace of 7.2% in January-August – but there is still a huge oversupply in unsold properties which will take time to be reduced.
Retail sales growth picked up, reaching 10.8% in August from a year earlier, from 10.5% in July. But economists did point out that inflation kicked up to 2% in August (annual), driven by a 20% surge in pork prices. So the higher cost of pork impacted retail sales.
But it has to be pointed out that August 2014 was a very strong month for the Chinese economy, so the comparison with last month might be a bit invidious.
As well there’s the impact of disruptions caused by the Tianjin port explosion and industrial shutdowns in and around Beijing ahead of the World War 2 anniversary military parade in Beijing.
September’s figures should provide a clearer picture of underlying conditions. But they are weak and have weakened from the start of the year and a year ago. But are they weak enough to influence the Fed?
