China's May economic indicators point to activity equivalent to roughly 6.7% GDP growth over the month, according to my GDP tracker. The GDP tracker is up slightly from 6.6% in April. As we saw with the PMI numbers, activity has marginally improved on the whole, but a significant pick-up in growth is not yet in sight.
Improved Property Market
The property market, one of the largest economic headwinds over the last year, continues to show improvement. Residential property sales are up a blistering 16.4% over the last year after a boost from central bank easing, a roll-back of mortgage restrictions in March, and price declines. With disposable income up over 8.5% on the year and housing prices down over 4% over the same period, buyers have more enticement to enter the market. New housing starts are still soundly negative and construction is still declining. But, given the better sales and price moves, I still estimate a rebound in new housing starts and construction by around September or October. Housing sales usually lead construction starts by 6 months (see my post Some housing data the only good data in April's ugly economic release. for details). The outlook for iron ore and copper remain positive.
Consumption numbers are still very sluggish, with May's 1 year change in retail sales of 10.1% only modestly better than April's 10.0%. There is a negative correlation between retail sales and the stock market surge. Chinese consumers are potentially holding off on purchases in order to buy shares. Despite the creation of $6.6 trillion in paper wealth in the stock market over the last year, retail sales are plodding along at the slowest pace in decades. However, one interesting thing to note is the pace of online sales. So far this year online sales are up 39% from last year and now account for 9.5% of retail sales.
Investment and credit growth were still pretty weak in May, increasing 9.9% and 11.9% from last year respectively. Traditional bank lending has accelerated on RRR cuts, but that growth has been offset by an accelerated slowdown in other forms of credit, resulting in some of the slowest credit growth in decades. The weak investment will limit the potential for a meaningful pick-up in growth in the very short-term.
Weak but Improved Industrial Production
May industrial production grew at a slightly faster pace than April, but remains weak by historic standards. Many traditionally important sources of growth have declined over the last year: Auto production declined 1.8%, cement production declined over 5%, and crude steel was down 2.7% from last year's production levels.
All-in-all, Q2 looks to be growing at around 6.7% so far, lower than the 2015 target of 7%. Additionally, the May numbers don't give us any indication that more PBOC easing is imminent. Easing measures this year have already potentially unleashed trillions of RMB into the system and brought down interest rates considerably. So, the PBOC may wait until measures already introduced have had time to spread to the real economy before deciding to ease any further. If anymore broad easing takes place, I estimate that it will come around October.