We combine quarterly household survey data with recently released annual GDP data to show why consumption isn't weak, what that means, and what there still is to worry about.
Latest data show that even before the BOJ makes its postponed decision about cutting gross new JGB purchases, on a net basis, the flow of new buying is already falling.
Industrial prices in China have hardly changed since September 2023. So there isn't upstream price deflation...but equally, there are no signs of inflation either.
The BOJ's latest estimate of the official output gap turning negative in Q1 is puzzling when the Tankan, also produced by the central bank, shows utilisation not just tight, but tightening further.
The June drop in the Caixin/S&P services PMI closes the gap with the already-weak official version. This might be noise, but there's a risk that the muddle through of the last few months is running out of road.
Like high-frequency local data, global commodity prices indicate PPI deflation in China has largely been a cyclical phenomenon, and will end in the next couple of months.
CPI inflation dropped more convincingly in July. Services CPI is though still running at a bit over 2%, and input prices have rebounded. With exports growing, we still aren't convinced that BOK cuts are imminent.
The BOJ has been expressing confidence that inflation is getting to 2%. The Tankan can only reinforce that: the labour market tightened, and output prices rose again. The BOJ should be tightening.
An update of our regional slide pack.
The gap between the weak official and strong Caixin manufacturing PMI shown again in the June data is puzzling. But the Caixin version does make some sense given the loosening suggested by an FCI.
The PMIs suggest that the regional export cycle is gaining momentum. The lift is strongest in Taiwan, where the non-mfg PMI also lifted in June.
We've been expecting a transition away from domestic services growth to externally led mfg. Instead, both exports and services are picking up. The non-mfg PMI has rarely been higher than it was in June.
Semiconductor exports are growing strongly, but they only account for one-fifth of total exports. Without other products rising too, there's limited upside for exports overall.
There's nothing in the Q2 Tankan to change the BOJ's view of the economy, with sentiment stable, the labour market tight, and inflation elevated. Separately, consumer confidence in June ticked up.
A summary of what happened on East Asia Econ last week, and what to look for in the next seven days.
This week's May service export data suggests the net export contribution might be a bit lower in Q2 than Q1. But it will still be positive, and so boost headline GDP growth in a way that didn't happen in 2023.
The official PMIs for June show China's cycle remains weak, weighed down by construction. There is unlikely to be a recovery until the property cycle stabilises.
Export performance is the most obvious driver of Taiwan's outperformance relative to Korea since the pandemic, but the domestic story has been stronger too.
Today's data releases show stronger Tokyo inflation, headline and core; no big change in the labour market; and a rise in IP.
The official Monitoring Indicator that was updated today through May includes equity prices, but also real economy inputs like IP. It paints a picture of a pretty punchy recovery.
Retail sales in May bucked the weakening of consumer confidence in recent months. That said, real retail sales remain lower than in September 2023. Consumption is still weak.
Business confidence remains weak, and prices haven't fallen back. The one change in the June surveys was a further rise in exporter sentiment. That is starting to look more significant.
If you want to follow just one indicator in China, this is a good candidate. Li Yang has referred to it as "lying flat". If it doesn't change, it is very unlikely the trajectory of nominal growth will either.
After flat-lining for much of 2022 and 2023, China's exports have now risen anew. After rising 20% during the pandemic, volumes have now increased a further 5%. That lift isn't being seen elsewhere in Asia.
With YoY export prices falling, China is exporting deflation. But most of the region has been too. The data continue to suggest export deflation from China is more cyclical than structural.