Aurelia Butler

BEIJING/HONG KONG (Reuters) – Erin Yao would like to take street dance classes and travel, activities she could not do during three years of COVID-19 restrictions in China.Instead of pursuing such goals, as many economists had expected consumers to do once China lifted those curbs, she is saving more of her salary than she did during the pandemic, when she felt compelled to stock up on basic necessities.”I would ask myself if I have enough savings for treating an unexpected illness. If I lose my job, do I have enough money to sustain myself until I find a new one?” said the 30-year-old book editor.Yao’s reluctance to spend is the result of an economic growth model from the 1980s that many say has relied too heavily on investment in property, infrastructure and industry and not enough on empowering consumers to earn and buy more.But while faltering growth in the world’s No.2 economy has given rebalancing a new sense of urgency, transferring economic resources to households would require difficult decisions that would cause even more near-term pain.Specifically, boosting households’ share of national income would mean a decline in the share of other sectors, either businesses – in particular China’s sprawling industries – or the government sector.”Their fall will make a recession unavoidable,” said Juan Orts, China economist at Fathom Consulting. “We think that this is a price that Beijing is not willing to pay,” said Orts, who sees China heading towards “Japanification,” which refers to Tokyo’s “lost decades” of economic stagnation since the 1990s.SAFETY NETIn theory, Yao could spend more if she found a job paying more than her 8,000 yuan ($1,097) monthly salary, which is less than a fifth of what book editors earn in the United States, according to employment website Glassdoor.But China’s employment market is weak, with youth joblessness at record highs above 21%.The private sector, responsible for 80% of new urban jobs, is still recovering from regulatory crackdowns on tech and other industries. Policymakers have vowed to boost credit to firms, but businesses are ultimately constrained by frail domestic demand.Another way to get people like Yao to spend is to address their insecurities. Many economists have called on China to boost its social safety net to rebalance the economy.In Beijing, where Yao lives, three-to-24 month unemployment benefits are worth up to 2,233 yuan a month, slightly less than what she pays in rent for her 12 square metre room.Her parents live in rural China and will soon reach retirement age, after which they can each receive meagre annual pensions of up to 1,500 yuan.Yao spends 300 yuan a month on her father’s medicines, the same as what a dance class costs.”If the public medical insurance covered more expenses for the elderly, I would feel more secure,” Yao said.Financial uncertainty is also discouraging her from having children, she added. China’s population is ageing and shrinking, especially in the 20-40 bracket, when people usually reach lifetime consumption peak.MEASURESOver the past month, various government departments have announced dozens of measures to boost consumption, heeding calls from a key Communist Party leadership meeting.They include car and home appliances subsidies, extending restaurants’ opening hours and promoting tourism and entertainment activities.Yao was unswayed and would prefer consumer vouchers, which some local governments in China have issued, but in amounts too small to matter at a macro level.Businesses are similarly unenthused.”We haven’t really seen anything in terms of really boosting demand,” said Jens Eskelund, President of the European Chamber of Commerce in China, adding “that would be more important than supporting the supply side.”Wang Jiliu, 45, who owns a catering business in the Chinese island of Hainan, says revenue is declining, partly because people’s incomes haven’t improved much since the pandemic.That, in turn, is affecting her own spending habits.”I think in the same way: I will also control my desire to shop,” Wang said. “In the past, we used to eat out and travel, which we don’t do much anymore.”Proposals for demand-side measures from economists include better and more widely available public services, higher social benefits, giving workers more legal bargaining power, or distributing stocks of state-owned firms to citizens.But who pays? An extra burden on businesses – through higher welfare contributions, for example – is another hit to employment and growth. That leaves the government sector, which is dealing with a municipal debt crisis.Local governments, while cash poor, are asset rich. Net assets of non-financial state-owned firms reached 76.6 trillion yuan in 2021.Michael Pettis, senior fellow at Carnegie China, estimates that if Beijing forces local governments to transfer 1-1.5% of GDP to households, China could maintain current growth.”The wealth and power of local government, business and financial elites often depend on control of those assets,” he said.”One of the really big conflicts is likely to be between Beijing and the local governments over how to allocate the various adjustment costs. That will become one of the most contentious political issues over the next two years.”  ($1 = 7.2904 Chinese yuan) More

The GfK consumer sentiment indicator rose to -25 in August from a three-month low of -30 in July, its biggest rise since April although still below the average of -10 for the survey, which has been running since 1974.Economists polled by Reuters had forecast a smaller increase to -29.”While the financial pulse of the nation is still weak, these signs of optimism are welcome during this challenging time for consumers across the UK,” said Joe Staton, GfK’s client strategy director.Households’ expectations for their personal financial situation over the coming year rose to -3 from -7, well above the reading of -31 a year ago when energy prices were soaring and the government had yet to announce its subsidy programme.Consumer price inflation dropped to 6.8% in July, down from a 41-year high of 11.1% reached in October 2022, although still higher than in all other major economies.Wage growth is now close to matching inflation for the first time in nearly two years – though rapid rises in salaries worry the Bank of England, which raised interest rates to a 15-year high of 5.25% this month.The improvement in the GfK survey contrasts with other recent downbeat data on consumer spending.Retail sales volumes fell 1.2% in July – partly reflecting unusually wet weather after a heatwave the month before – while industry data provider NIQ said supermarket spending in the four weeks to Aug. 12 grew at the weakest pace since January.The GfK data was based on a survey of 2,001 people conducted between Aug. 1 and Aug. 10.Separate data on Friday from Britain’s Recruitment and Employment Confederation showed there were 29% more new job advertisements in early August than the same time a year before. The survey also showed 2.3 million active job postings – 60% more than a year earlier and more than double the number of vacancies reported by the Office for National Statistics for the three months to July. More

(Reuters) – Major U.S. department stores including Macy’s (NYSE:M) and Nordstrom (NYSE:JWN) are flagging delays in store credit card repayments, another risk to revenues as consumers pull back from discretionary spending ahead of the crucial holiday shopping season.Macy’s executives disclosed on Tuesday that rising delinquencies cut credit card revenues to $120 million in the second quarter, down $84 million from the previous quarter. While Nordstrom’s credit card revenues rose 10% in the first half of this year, company executives said Tuesday that delinquencies are now above pre-pandemic levels and could “result in higher credit losses in the second half and into 2024.”In an earnings call on Wednesday, Kohl’s (NYSE:KSS) said “other revenue,” which is primarily its credit business, declined 3% in the second quarter, sharply down from 11% in the first quarter. The company also announced a new co-branded credit card with Capital One in a bid to attract more customers to its credit segment.U.S. department stores have long offered store credit cards, which often provide savings or points on purchases, as a way to capture sales and grow revenue. However, those cards are typically riskier than traditional credit cards, with higher interest rates and lower credit limits, according to credit reporting consultant John Ulzheimer.Macy’s credit card, for example, has an annual percentage of 31.99% while the national average is 22.39%, according to an August report by WalletHub. Those high interest rates, combined with laxer credit score thresholds, make it more likely that higher-risk consumers will sign up for store cards, according to Ulzheimer.While consumer spending remains relatively resilient according to U.S. retail sales data, investors and experts say rising delinquincies could signal growing pressure on some consumers. The percentage of delinquent payers rose by 23.1% to 38.2% between the second quarters of 2022 and 2023, with the biggest change among consumers in their 40s and 50s, according to data from the Federal Reserve Bank of St. Louis.Declining payment rates could be “an early sign that consumption is getting weaker,” said FRED economist and vice president Juan M. Sánchez. Delinquency rates are currently highest among young consumers in their 20s and 30s and those in more economically distressed zip codes.Defaults in credit payments mean department stores are now assuming higher bad debt and write-offs for the year as spending remains pressured in the United States.”For stressed consumers, store cards are one of the first things they may be late or renege on before regular credit cards, car payments, and mortgages which they consider more important,” said Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors. More

UK consumer confidence rose more than expected in August, helped by lower energy prices and accelerating wage growth. The consumer confidence index — a measure of how people view their personal finances and broader economic prospects — rose five points to minus 25, recovering most of the ground lost in July and returning to about the levels seen at the start of last year, research group GfK said on Friday.The figure was stronger than the marginal uplift to minus 29 forecast by economists polled by Reuters.Consumer confidence “regained momentum this month with a welcome five-point improvement”, said Joe Staton, client strategy director at GfK. “While the financial pulse of the nation is still weak, these signs of optimism are welcome during this challenging time for consumers across the UK,” he added.Some economists attributed the improvement to an easing of the cost of living crisis. In July inflation dropped to 6.8 per cent, the lowest rate since February last year and down from a peak of 11.1 per cent in October. Wages increased at the fastest pace on record in the three months to June, rising more quickly than prices for the first time in about a year and a half. Gabriella Dickens, an economist at Pantheon Macroeconomics, said confidence was boosted by the decline in mortgage rates over the past month, alongside the fall in energy bills in July.The figures suggest “the cost of living crisis is coming to an end”, said Ruth Gregory, an economist at the consultancy Capital Economics.However, she warned that “consumer confidence may deteriorate again in the coming months due to further rises in unemployment, falls in house prices and still rising interest rates”. The Bank of England is expected to raise interest rates in September for the 15th consecutive time since December 2021.

Consumer confidence is an indicator of willingness and ability to spend, which matters for economic growth as household spending accounts for a large part of gross domestic output. It has been undermined by soaring food and energy prices, which surged to multi-decade highs following Russia’s invasion of Ukraine. The GfK index, based on interviews carried out in the first half of the month, showed that all sub-indices improved in August. Expectations for personal finances over the coming year rose by four points to minus three, the closest to a positive reading since January 2022. Expectations for the economy more generally were also up. The measure tracking spending intentions rose by eight points, which is “potentially better news for retailers as we move into autumn”, said Staton. More

(Reuters) – Underlying inflation in the euro zone remains sticky and monetary policy needs to be more stubborn than price growth, Bundesbank President Joachim Nagel told Bloomberg TV on Thursday.Nagel said he has yet to make up his mind about the September policy decision but he considers inflation far too high while a recession is still not on the cards. More