Current conditions eased 1.2 points to 100.2 in July, the second consecutive monthly decline, under the direct influence of rising concern on consumer prices and lower stock market returns. The decline was led by current personal finances, which fell 4.6 points to 122.2. Despite this, sentiment on whether it was a good time to buy higher-cost durable goods like furniture and appliances rose 2.1 points to its highest level in the four- month history of the index. A rising desire to own a car was offset by an even stronger increase in expectations for higher gasoline prices. In contrast, future expectations rose by 1.3 points to 102.9 in July, led by gains in both the one-year business outlook (3.1-point rise) and five-year business outlook (3.5-point rise).
On the other hand, expectations on personal finance in one year fell for the second month in a
row (down 1.3 points), affected by the declining sentiment on current personal finances. The gain in confidence in July was due largely to improved sentiment among the youngest group surveyed, those 20-34 years old (+1.1 points). Sentiment among both middle-aged (35-54 years old) and older (55-64 years old) consumers, who tend to be more sensitive to changes in food, housing and stock market prices, was basically stable.
The stability of overall sentiment for middle-aged and older consumers masked differing trends based on a combination of age and income. For older people who make less than RMB 48,000 per year, the continued rise in general prices, particularly for food, has had a strong negative impact on their lives. However, for middle-aged consumers who make more than RMB 48,000 per year, the drop in current conditions was due largely to lower investment returns.
Consumer sentiment showed strong regional differences in July. While sentiment in the northern and central parts of East China declined by 1.3 and 1.6 points, respectively, it climbed 1.1 and 2.9 points in the southern part of East China and in Middle & West China. Changes in views on food prices and house prices, as well as stock market prices, have contributed to the above trends. In the northern part of East China, the decline was led by a 2.1-point drop among older consumers and a 1.7-point drop among the middle-aged.
While overall sentiment among the younger generation inched down only 0.4 point, a larger drop was seen among those with lower incomes. Although current conditions in this region fell only 0.3 point, current personal finance (down 2.8 points) has been severely undermined by rising prices and lower investment returns. The decline was however offset by a rise in durable purchase sentiment, which was probably due to the fund flow back from stock market investment. The expectations index, however, tumbled 1.9 points, led by concern among the higher-income group that the recent strong rise in housing prices might hurt longer term conditions in the area, particularly in Beijing.
In contrast to Beijing and Shanghai, Guangzhou consumers were much more optimistic in July, with the overall sentiment index gaining 4.0 points to 102.9. Sentiment on current conditions rose a modest 0.4 point, while future expectations jumped 6.0 points. Significant rises were posted in both the one-year personal finance outlook as well as the one-year and five-year business outlooks, with no major differences between income groups. As the 10th anniversary of the return of Hong Kong to Mainland China may have posed a major impact on the above changes in July, the survey result of August would help further clarify the trends within this area.
