(Bloomberg) — China’s economy showed some improvement in June as Covid restrictions were gradually eased, although the recovery remains muted.
That’s the outlook based on Bloomberg’s aggregate index of eight early indicators for this month. The overall gauge returned to the neutral level after deteriorating for two straight months.
Economic activity picked up in June after financial hub Shanghai lifted its lockdown, allowing businesses to restart and most residents to leave their homes. That can be seen in a rebound in small business confidence, which started growing again after contracting for two months.
A survey of more than 500 smaller firms showed that “demand and production recovered strongly among manufacturing,” and export-oriented smaller firms outperformed, according to Hunter Chan and Ding Shuang, economists at Standard Chartered Plc.
However, “the manufacturing recovery was more significant than services,” they said. Contact-intensive industries such as retail and catering continued to be a drag, while real estate, transport and information technology reported an acceleration in activity and construction jumped.
Rising activity isn’t translating into higher demand for some building materials yet. More steel plants have been idled and inventory levels at major Chinese steel mills have climbed 10.7% in mid-June from earlier in the month, and are about 82% higher than the start of this year. Stocks of steel rebar, which is used in construction, rose slightly in June.
Beijing has pledged to boost policy measures to support growth, with President Xi Jinping saying last week China would strive to meet its goals for the year. Stocks were up for a fourth week on optimism of stimulus and as lockdowns ended, with foreign inflows rising.
However, the housing sector continued to be a drag on the economy. Property sales declined in the first three weeks of June in the top four cities in China, even though sales in Shanghai last week had mostly recovered to the level before the lockdown.
An official index that tracks apartment and home sales has now declined for 11 straight months — a record since China created a private property market in the 1990s. The slump likely continued into June, with weekly sales in the top 50 cities contracting from the level last year.
Read more: China’s Property Slump Is a Bigger Threat Than Its Lockdowns
The car market is making a gradually recovery after the lockdowns. Based on sales in the first two weeks of this month, more cars were sold in June than the same period in 2021. Sales fell in the past three months as Covid restrictions caused car plants and dealerships to shut and also prevented people across the country from leaving their homes to go shopping.
Total retail sales also dropped in that period, with the economies of Beijing and Shanghai the worst hit.
The recovery in the services industry will likely take longer than for goods. Consumers are still unwilling or unable to go out as much as before since China’s strict Covid Zero policy means they face being quarantined for weeks if they’ve been in the same location as a positive case.
The restrictions and factory closures of the past months have also curbed the incomes of many businesses and workers, even if they weren’t locked down.
Read more: Even Without a Lockdown, Beijing’s Economy Struggled in May
The export sector likely supported demand in June, as companies ramped up shipments that had been delayed and ports worked to clear the backlog of containers. Although South Korean exports in the first 20 days of the month fell for the first time in more than a year, that was largely because of fewer working days this year than last.
The daily average value of Korean shipments rose 11% in the period from the same time in 2021. Exports have been a strong driver for China’s economy and the strong growth continues to defy predictions that they would slow markedly or start to fall.
Read more: Metals Haven’t Crashed This Hard Since the Great Recession
The outlook for those shipments in the rest of this year depends on whether rising concerns about a global recession are correct or not. The price of copper had its steepest weekly loss in a year last week as global recession fears mounted, damping the outlook for demand and battering commodities from oil to metals. The metal used in wires and cables extended its weekly loss to 7%, with prices hitting the lowest level since February last year following disappointing US business activity data that included an abrupt cooling in manufacturing.
Bloomberg Economics generates the overall activity reading by aggregating a three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.
- Major onshore stocks – CSI 300 index of A-share stocks listed in Shanghai or Shenzhen (through market close on 25th of the month).
- Total floor area of home sales in China’s four Tier-1 cities (Beijing, Shanghai, Guangzhou and Shenzhen).
- Inventory of steel rebar, used for reinforcing in construction (in 10,000 metric tons). Falling inventory is a sign of rising demand.
- Copper prices – Spot price for refined copper in Shanghai market (yuan/metric ton).
- South Korean exports – South Korean exports in the first 20 days of each month (year-on-year change).
- Factory inflation tracker – Bloomberg Economics-created tracker for Chinese producer prices (year-on-year change).
- Small and medium-sized business confidence – Survey of companies conducted by Standard Chartered.
- Passenger car sales – Monthly result calculated from the weekly average sales data released by the China Passenger Car Association.
©2022 Bloomberg L.P.
The easing of inflation pressures is giving the economy some breathing room, for now – CNBC
If inflation has been the biggest threat to U.S. economic growth, then July’s data should provide signs that there’s at least some relief in the pipeline.
Prices were flat for the month as gauged by the items that the Bureau of Labor Statistics tracks for its consumer price index. That marked the first time the aggregate measure hadn’t posted a month-over-month increase since May 2020, when the widely followed index showed a modest decline.
Just a month ago, CPI posted its fastest 12-month gain since November 1982, following a trend that helped send economic growth into contraction for the first half of the year, stirring up talk of a recession.
But with at least the short-term trend indicating the rate of price increases is abating, economic optimism is perking up.
No recession, for now
“The whole recession narrative really needs to be put on a shelf for now,” said Aneta Markowska, chief economist at Jefferies. “I think it’s going to be shifting to a stronger-for-longer narrative, which is really supported by a reversal in inflation.”
Markowska, whose forecasts this year have been accurate, sees solid growth in the near term, including a 3% growth rate in the third quarter. The Atlanta Federal Reserve’s GDPNow gauge, which tracks economic data in real time, pointed to a 2.5% growth rate in a Wednesday update, up 1.1 percentage points from its last one on Aug. 4.
However, Markowska also expects pressures to intensify in 2023, with a recession likely in the back part of the year.
Indeed, there was a little bit for both arguments in the CPI report.
Most of the tempering in inflation came because of a fall in energy prices. Gasoline slid 7.7%, the biggest monthly decline since April 2020. Fuel oil tumbled 11% as energy-related commodity prices were off 7.6%.
Transportation services cost increases also came off the boil, with airline fares tumbling 7.8% to reverse a trend that has seen tickets surge 27.7% over the past year.
But there were few other signs of inflation declines in the report, with food costs particularly high. The food index, in fact, rose 1.1% on the month, and its 10.9% pace over the past 12 months is the highest since May 1979.
That’s causing worries at places such as City Harvest, which helps feed needy New Yorkers who have been hit especially hard by price surge that began last year.
“We’re seeing many more children come into food pantries,” said Jilly Stephens, the organization’s CEO. “Food insecurity had been intractable even before the pandemic hit. Now we’re seeing even more people turn to food pantries because of the rising prices.”
Stephens said the number of children seeking food assistance about doubled a year after the Covid pandemic hit, and the organization is struggling to keep up.
“We’re always optimistic, because we are supported by incredibly generous New Yorkers,” she said.
People keep spending
Despite the surging prices, consumers have been resilient, continuing to spend even with inflation-adjusted wages contracting 3% over the past year.
Jonathan Silver, CEO of Affinity Solutions, which tracks consumer behavior through credit and debit card transactions, said spending is at a healthy pace, rising about 10.5% over the past year, though inflation is influencing behavior.
“When you start to look at specific categories, there’s been a lot of shifting in spending, and as a result, some categories are being impacted more than others by inflation,” he said. “People are delaying their spending on discretionary items.”
For instance, he said department store spending has fallen 2.4% over the past year, while discount store spending has risen 17%. Amusement park spending is down 18%, but move theaters are up 92%. Some of those numbers are influenced by rising prices, but they generally reflect the level of transactions as well.
As inflation eases, Silver expects discretionary spending to increase.
“We believe there will be a spike later in the year that will create an upward slope to the spending in key categories where the consumer has been delaying and deferring spending,” he said. “Consumers may get a holiday present of some relief on food prices.”
In the meantime, the year-over-year inflation pace is still running at 8.5%. That’s just off the most aggressive rise in 40 years and a “worryingly high rate,” said Rick Rieder, chief investment officer of global fixed income at asset management giant BlackRock.
At the center of worries about global growth is the Federal Reserve and concerns that its interest rate hikes aimed at controlling inflation will slow the economy so much that it will fall into recession.
Following Wednesday’s report, traders shifted their bets to expecting the Fed to hike just half a percentage point in September, rather than the previous trend toward 0.75 percentage points, a move that Rieder said could be mistaken.
“The persistence of still solid inflation data witnessed today, when combined with last week’s strong labor market data, and perhaps especially the still solid wage gains, places Fed policymakers firmly on the path toward continuation of aggressive tightening,” he wrote.
The Pinched-Hose Economy – The Atlantic
This is an edition of The Atlantic Daily, a newsletter that guides you through the biggest stories of the day, helps you discover new ideas, and recommends the best in culture. Sign up for it here.
“It’s not just my opinion that things are weird,” Derek Thompson told me recently. It’s a fact of life, he explained, that the U.S. economy is behaving very strangely right now.
But first, here are three new stories from The Atlantic.
A Flopping Hose
We learned last week that unemployment in the U.S. is as low as it’s been at any time in the past 50 years, and a report released today shows that inflation slowed in July. Those are good things—and yet, economic output has also slowed in 2022, enough that economists are asking whether the country is in a recession.
I caught up with Derek Thompson, a staff writer and the author of the Work in Progress newsletter, about this huge disconnect between job growth and economic growth, and asked why it’s so hard to understand what’s happening with the economy right now. “If economic growth is really declining, it’s one of the strangest downturns in American history,” he told me.
Isabel Fattal: How should a regular, nonexpert person think about this moment in the U.S. economy?
Derek Thompson: When you’re thinking about the economy, you should think about three categories: statistics, labels, and feelings. Statistics, like the inflation rate or the unemployment rate, come from government surveys, and you should trust them, because they are highly descriptive of what is happening to the broader economy.
Feelings come from your personal experience in the economy. Is your local labor market good? How do you feel about whether your income is holding up against inflation?
Labels come from the National Bureau of Economic Research (NBER) Business Cycle Dating Committee. The label of “Are we in a recession or not?” is determined by eight economists. That has nothing to do with your feelings of the local economy at all.
Isabel: You wrote recently that “Are we in a recession?” is the wrong question to ask. Why?
Derek: There’s two reasons why it’s so hard to say whether we’re in a recession right now. Number one, the NBER is not going to render a judgment for several months, several quarters, or more than a year. So why debate now what we might not know for a year?
Number two, the GDP estimate that we just got from the Bureau of Economic Analysis is just that—an estimate—and the estimate will be revised. There’s about a coin-flip chance that the economy actually grew in the first half of 2022. What we know about recent growth unfortunately isn’t solid.
Isabel: What is one thing we do know for sure about the economy right now?
Derek: We know three things for sure. Number one, we know that inflation is very high, historically speaking—one of the highest rates in the past 40 years. Number two, we know that unemployment is low, as low as it’s been in 50 years. The labor market is roaring.
Number three, we know that growth is slowing down. We know that the GDP growth rate was really high in 2021, and we know that it’s slowing down in 2022. We don’t know if it’s what some economists would call a recession.
Isabel: As you’ve written, we’re in an everything-is-weird economy because different factors are behaving in contradictory ways; for example, jobs are growing, but the economy is shrinking. How should people deal with these mixed messages? What should we be paying most attention to?
Derek: Predicting the future of the economy is so hard that it’s useful to have a single metric to look for. The single metric I would watch is inflation, because if inflation starts to come down, as I believe it will in the next few months [it declined to 8.5 percent in July], the Federal Reserve doesn’t have to keep hacking up interest rates. If interest rates don’t keep going up, then the economy will probably get back to growth. So it all flows from inflation, and if I were interested in figuring out the direction of the economy, I’d be obsessed with watching energy prices, housing prices, and retail spending.
Isabel: How are Americans feeling about the economy right now? There’s a possibility that people’s feelings can actually affect where the economy goes from here, right?
Derek: It’s a really important point. Feelings aren’t imaginary. Feelings drive the economy, to a certain extent. When people are optimistic about the future, they spend more money.
But if you ask consumers how they’re feeling about the economy, they increasingly bifurcate by ideology. Republicans say they’re sad about the economy when a Democrat is in the White House. And Democrats say they’re sad about the economy when a Republican is in the White House. So it’s not as useful as it used to be to ask people about their consumer sentiment, because increasingly, consumer sentiment is just political sentiment.
On my podcast, Plain English, the economist Austan Goolsbee made the great point that in 1992, the entire presidential election was about an economic slowdown that had technically already ended. So statistically, the recession was over, but in vibes and feelings, the recession was deepening, and you had this electoral outcome—the defeat of the incumbent president—hinged on feelings of a recession that actually didn’t exist. That goes to show that even if feelings are disconnected from statistics, they still have real-world outcomes.
Isabel: Is this an unprecedented moment for the economy?
Derek: We’ve never had an economy like this, period. This is a cliché, but I’ve called this the pinched-hose economy. If you turn on the water in your backyard hose and you pinch the hose for a while, the water will build up, and then, when you release the hose, it’ll start sputtering wildly, and the hose will flop all over the place in a violent and strange manner. That’s what happened in the economy. We shut off the hose and said no one will fly, no one will go to restaurants, people won’t go to movie theaters. We purposefully shut down the economy because of the pandemic.
But then demand, which is the water, surged beyond supply’s capacity to easily fulfill it. That’s why we’re seeing the economic hose flopping all over the place. It’s why things are weird with baby formula, with gas prices, with airlines. That’s the hose flopping around. The hose is still flopping.
- Donald Trump took the Fifth Amendment and declined to answer questions from the New York State attorney general’s office in the investigation into his company’s business practices.
- Russian forces killed at least 13 civilians and wounded others in a missile attack in southern Ukraine overnight. Ukrainian special forces also reportedly carried out a strike on a Russian air base in Crimea yesterday, a move that would mark a significant escalation in fighting.
- The Justice Department charged a member of Iran’s Islamic Revolutionary Guard with allegedly plotting to assassinate John Bolton.
Hibernation: The Extreme Lifestyle That Can Stop Aging
By Katherine J. Wu
Today’s most elderly bats aren’t supposed to exist. Ounce for ounce and pound for pound, they are categorically teeny mammals; according to the evolutionary rules that hold across species, they should be short-lived, like other small-bodied creatures.
More From The Atlantic
Read. The Yellow House by Sarah M. Broom, a memoir set in New Orleans that has an incredible sense of place.
Or try another pick from our list of eight books that grapple with a hard childhood.
Watch. In the mood to solve a puzzle? Watch or rewatch Severance (Apple TV+) or Yellowjackets (Showtime)—but this time, try to follow along with fan theories on the internet, which play a bigger part in shaping modern TV than you might realize.
Singapore Narrows Growth Forecast After Economy Shrinks in 2Q – BNN Bloomberg
(Bloomberg) — Singapore trimmed its 2022 growth forecast to reflect an increasingly challenging global environment, after the economy slipped into contraction in the second quarter.
Final data for the June quarter Thursday showed gross domestic product shrank 0.2% from the previous three months, and worse than the zero growth estimated by Ministry of Trade and Industry earlier. It also narrowed the full-year projection to a range of 3%-4% from 3%-5% seen before.
The MTI flagged risks to global recovery from aggressive monetary policy tightening as well as China’s ongoing struggles with Covid-19 and a property market downturn.
“Downside risks in the global economy remain significant,” Gabriel Lim, MTI’s permanent secretary, said in a briefing after the release.
Lim cited potential further escalation in Russia’s war in Ukraine, which would worsen inflation and global growth prospects, as well as financial instability caused by tighter monetary policies in advanced economies and possible further geopolitical tensions in Asia.
The Singapore dollar fell 0.1% to 1.3704 per dollar at 8:36 am local time.
The trade-reliant city-state has sought to stave off further damage to its post-Covid growth recovery, stemming especially from supply-driven price shocks, through a combination of monetary policy tightening and targeted subsidies to aid the most vulnerable households. Singapore officials are bracing for further volatility in a global economy that the International Monetary Fund warned is on the brink of recession.
“The bigger question is what is the 2023 outlook,” said Selena Ling, head of Treasury Research & Strategy at Oversea-Chinese Banking Corp. “Will there be recession in the major economies that will drag the global and Asian growth prospects down further?”
The trade ministry data Thursday also showed the economy grew 4.4% in the second quarter from a year ago, compared with an earlier estimate of 4.8% expansion. The government expects “slight” quarter-on-quarter growth for the remainder of the year, ruling out a technical recession, according to MTI.
Monetary policy is still appropriate after the tightenings this year, Edward Robinson, deputy managing director for the Monetary Authority of Singapore, said at the briefing.
But “significant uncertainties” remain on the inflation outlook and third quarter will be a critical time to watch those pressures, he said. The closely-watched core inflation print is seen to “rise a bit” this quarter, Robinson said.
(Updates with ministry’s comments in fourth paragraph and economist comments in eighth.)
©2022 Bloomberg L.P.
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