The U.S. retail sales slightly increased in August, as reported by the U.S. Census Bureau on September 17. The U.S. Retail sales rose by 0.1% month-over-month in August, down from 1% in July, but better than market expectations of -0.2%. On a year-over-year basis, retail sales grew by 2.1%, lower than the previous month’s 2.7%.

The increase this month was primarily driven by online store sales, which saw a monthly growth of 1.4%. However, this was partially offset by a 0.1% decrease in automotive-related sales and a 1.2% decline in gas station sales.

Core retail sales (excluding automotive-related sales) rose by 0.1% on a monthly basis, while double-core retail sales (excluding automotive and gas station sales) increased by 0.2%. The control group retail sales, which exclude automobile sales, building materials, gasoline stations, and food services, rose by 0.3%.

In summary, while August retail sales showed some resilience in U.S. consumer spending, certain declines may have been driven by falling prices. Nevertheless, the market appeared to overlook the retail sales data, as FedWatch indicated that the probability of a 50-basis-point rate cut had risen to 65%, up from 50% the day before.

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Faced with the dual challenges of an aging population and a sluggish economy, China has decided to undertake a significant reform, announcing the first increase in the retirement age since the 1950s. The new policy raises the retirement age for men to 63, while for women, it will be adjusted to between 55 and 58, depending on the nature of their work. Experts suggest that the rapid pace of China’s aging population makes delaying retirement an unavoidable choice.

Currently, the retirement age for blue-collar male workers in China is set at 60, while for female workers it is 50. Female white-collar workers retire at 55. These retirement ages were established in the 1950s when the average life expectancy was around 40 years. In addition to raising the retirement age, the period for contributing to the pension fund will also be extended—from 15 years to 20 years starting in 2030.

China’s population is aging rapidly. The Chinese Academy of Social Sciences warned this year that the public pension system, which is the main source of income for most elderly people in China, will run out of funds by 2035.

Continuous Population Decline

The reason for the dwindling population is that China’s low birth rate is advancing faster than that of other countries. In 2022, China’s National Bureau of Statistics reported that, for the first time, the year-end population decreased by 850,000 compared to the previous year, marking a turning point from population growth to decline. In 2023, the population further decreased by 2 million, marking the second consecutive year of decline.

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In 2022, China’s total fertility rate dropped to 1.05 children per woman, down from 1.5 in 2019. The working-age population in China is expected to decline from 976 million this year to 938 million by 2030. With various government policies aimed at boosting the birth rate proving ineffective, there is an urgent need to adapt to an aging society with a lower fertility rate.

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Rapid Formation of an Aging Society

Reports indicate that last year, China surpassed the United Nations’ threshold for an “aging society,” with at least 14% of its population aged 65 and above. By around 2035, the proportion of people aged 65 and over is expected to increase to 30%.

At this rate, China could move from an aging stage to a super-aged stage in just nine years—a pace faster than any major country except South Korea. Japan took 11 years to make the same transition, Germany took 34 years, and the United States is expected to make this transition in 14 years.

Meanwhile, China’s fiscal situation has been deteriorating. Due to weak domestic demand and low business confidence, China’s fiscal revenue fell by 2.8% year-on-year in the first half of this year. Local governments have struggled to cope with a fiscal crisis as their revenue from land sales has dried up. Internal analysis in China suggests that delaying the retirement age to 65 by 2035 could reduce the pension budget deficit by 20%.

The Chinese government began discussing delaying retirement as early as 2008 but has been hesitant to take action due to concerns about political backlash. Now, with youth unemployment already high and the economy sluggish, the announcement of a retirement delay is bound to bring additional social pressure. Political commentators see this as a necessary course adjustment, arguing that faced with the worsening demographic challenge, the Chinese government has no other choice.

(Photo credit: Flickr/Thomas Berg CC By2.0)

Weekly Market Review:

Last week, a rebound in technology stocks propelled the S&P 500 to a 4% gain, positioning it to once again challenge historical highs. U.S. 2-year and 10-year Treasury yields continued to decline, reflecting expectations of Federal Reserve rate cuts, and the spread between the 10-year and 2-year Treasury yields widened to approximately 10 basis points. Meanwhile, the U.S. Dollar Index fluctuated around the 101 level.

Key Economic Data Review:

China CPI: China’s Consumer Price Index (CPI) increased by 0.6% year-over-year in July (previous: 0.5%). The rise in August was similarly influenced by extreme weather conditions, which drove food prices higher. Excluding food and energy, the core CPI stood at 0.3% (previous: 0.4%). Regarding the Producer Price Index (PPI), August’s PPI decreased by 1.8% year-over-year (previous: -0.8%), marking the 23rd consecutive month of decline. This indicates that deflationary pressures in China are persisting and showing signs of intensification.

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United States CPI: U.S. CPI increased by 2.5% year-over-year in August (previous 2.9%), with a monthly rise of 0.2% (same as the previous 0.2%). Breaking down the components, the year-over-year growth rate of housing services prices rebounded to 5.2% in August (previous: 5.1%). However, due to energy prices declining by 4% year-over-year (previous: +1.1%) pulled the overall CPI lower. Core CPI remained steady at 3.2% year-over-year (same as the previous 3.2%), with a monthly increase of 0.3% (previous 0.2%). Both CPI and core CPI annual growth rates were the lowest since February 2021.

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Eurozone Monetary Policy: In its September policy meeting, the European Central Bank (ECB) decided to cut the deposit facility rate by 25 basis points to 3.5% and announced the narrowing of the interest rate corridor, effective from September 18. The main refinancing rate and marginal lending rate were lowered by 60 basis points, reducing their respective spreads to 15 and 25 basis points relative to the deposit facility rate. On the economic outlook, the ECB raised its core inflation forecast for 2024 to 2026 to 2.9%, 2.3%, and 2.0% (June forecasts: 2.5%, 2.2%, and 1.9%), citing stronger-than-expected service sector inflation. However, due to restrictive financial conditions dampening private consumption and investment, the ECB lowered its economic growth projections for 2024 to 2026 to 0.8%, 1.3%, and 1.5% (June forecasts: 0.9%, 1.4%, and 1.6%).

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Key Data to Watch This Week:

U.S. Retail Sales (9/17): U.S. retail sales grew by 2.7% year-over-year in July (previous 2.0%), with a monthly increase of 1% (previous -0.2%). The July rise was largely driven by a 4% rebound in auto sales, reflecting recovery from the June slowdown caused by a cyberattack. The market expects August retail sales to normalize, with year-over-year growth slowing to 2.2% and a monthly increase of 0.2%.

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U.S. Monetary Policy (9/19): During the Jackson Hole symposium, Federal Reserve Chair Jerome Powell signaled that the time for policy adjustments had arrived, raising market expectations for a rate cut at the upcoming meeting. However, recent mixed U.S. economic data have created uncertainty regarding the size of the rate cut. According to Fed Watch data, the probabilities of a 25-basis-point and 50-basis-point cut are both at 50%.

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Japan Monetary Policy (9/20): After the Bank of Japan raised rates in July and indicated that it would refrain from further hikes in times of market instability, the market expects the BOJ to hold rates steady at this meeting, with the possibility of another rate hike in October or December.

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(Photo Crited: Pixabay )

The U.S. Producer Price Index (PPI) slightly increased in August, according to data released by the Bureau of Labor Statistics on September 12. The PPI rose by 0.2% month-over-month (previously 0%), exceeding market expectations of 0.1%. On a year-over-year basis, the PPI increased by 1.7% (previously 2.2%), falling short of the expected 1.8%, marking the lowest annual gain so far this year.

Breaking down the details, final demand goods prices remained flat month-over-month (previously up 0.6%), primarily due to a decline in energy prices, which dropped by 0.9% (previously up 1.8%). Excluding food and energy, prices rose by 0.2% for the month, posting the same increase as in the prior month.

Final demand services prices rose by 0.4% (previously down 0.3%), mainly driven by increases in other service categories, with guestroom rental prices contributing the most, surging by 4.8%. This mirrors the trend seen in the Consumer Price Index (CPI) data released a day earlier.

Overall, while the PPI demonstrated moderate growth in August, the Fed has shifted its focus on inflation towards the labor market. As a result, the inflation influence on future rate cuts has diminished. The market continues to anticipate a total of four 25-basis-point rate cuts throughout 2024, with expectations unchanged.

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The U.S. inflation continued to ease in August, as reported by the Bureau of Labor Statistics on September 11. The Consumer Price Index (CPI) increased by 2.5% year-on-year (previously 2.9%), with a monthly increase of 0.2% (unchanged from 0.2% in July). The core CPI, which excludes food and energy, remained steady with an annual increase of 3.2% (same as the previous 3.2%), and a monthly increase of 0.3% (up from 0.2%).

Breaking down the data, the decline in the annual CPI growth rate was largely driven by a reduction in energy prices, benefiting from last year’s high base effect. Energy prices fell 4% year-on-year (previously up 1.1%). However, core CPI, excluding food and energy, remained unchanged, primarily due to a rebound in housing services prices. The annual growth rate of housing services prices increased to 5.2% in August (up from 5.1%), with a monthly increase of 0.5% (up from 0.4%).

Housing prices have consistently been the largest impediment to the decline in core CPI. However, due to the recent slower pace of reduction, the market now anticipates an 85% probability of a 25-basis-point rate cut in September (up from 66% prior to the release of the CPI data). Moreover, the market expects a total of four rate cuts throughout 2024, with one in September, two in November, and one in December.

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