China Data - What is it telling us?
On Friday, for the first time on record (and likely 4 decades+), China's economy contracted a whopping 6.8% y/y in the first quarter. Spending some time thinking through this, I have a few thoughts and would be interested to see if others have any feelings or ideas, as we try and move through this incredibly complex environment. This data was (by my observation) largely ignored and overshadowed by the outcome of the unofficial Gilead trial which came out on Thursday night and the plan for "reopening the economy" that was also announced. It actually amazed me how little time was actually devoted to dissecting the data, given the magnitude of this drop.
China's economy dropped by this much, and they really only completely shut down one province (to the best of my understanding), rather than the entire country like here in the US. Given that China is being seen as the blueprint for re-opening, I think looking at the data makes a lot of sense. The two figures that interest me the most, and in my mind point to a much longer economic recovery than one may think, is the relationship between the industrial production figure and the retail spending figure. Industrial production improved significantly in March, with only a 1% drop, compared with 13% in January and February. To me, at a very high level, this would imply that by and large, China is back to work. This is all in, a pretty positive sign, albeit pretty shocking, but they did to a great job in containing it and the lockdown was largely focused on the Wuhan Province.
That said, even with people being "back to work," they still are not spending. Retail sales were still down 16%, only slightly better than the 20% fall in January and February. To me, this would imply what some of the more bearish views on the street are saying, that even when we manage to re-open the economy, consumer spending is not going to get back to pre-COVID levels anytime soon, and for a country that's 70% consumer driven, I don't view that as an overly positive sign of things to come in coming quarters. Exacerbating the problem is that the US shutdown, and US layoffs, have been nationwide, not largely contained...