Data released by the statistics bureau yesterday morning for August reveals the current state of the economy. In a nutshell, the August figures show the economy continues to decelerate, though the pace of decline has moderated with signs of divergence, maintaining a pattern of stronger external demand versus weaker domestic demand.

Retail sales growth has decelerated, and fixed asset investment has also slowed, with manufacturing, real estate, and infrastructure investment all seeing declines. However, import and export data show a rebound in year-on-year growth, and industrial value-added output above a designated size has improved.

Consumption growth slowed year-on-year. August saw total retail sales of consumer goods rise 0.40% year-on-year, down 0.20% from the prior month, with cumulative growth at 3.90%. For context, cumulative growth in the same period over the past two years was 4.60% and 3.40%, respectively.

Structurally, both goods sales and catering revenue growth continued to decline. Goods retail fell from 0.50% to 0.30% in August, while catering revenue dropped from 1.40% to 1.10%. Over the past two years, cumulative goods retail growth was 4.80% and 3.00%, with catering revenue at 3.60% and 6.60%.

Despite year-on-year declines across major consumption categories, most essential and discretionary items performed reasonably well on a month-on-month basis, aside from a few exceptions. Categories like communication equipment, household appliances, and audio-video equipment lagged behind their usual seasonal patterns, while most other segments showed resilience. Notably, automobile sales, which had previously dragged on retail figures, outperformed their seasonal average on a month-on-month basis.

Fixed asset investment growth retreated year-on-year. Through August, national fixed asset investment fell 7.20% year-on-year, down 0.50% from the prior month, compared to cumulative growth of 0.50% and 3.40% in the same periods of the past two years. Manufacturing, real estate, and infrastructure investment all experienced declining growth rates.

Breaking down the investment data: manufacturing investment dropped 2.30% year-on-year in August, down 0.60% from July, versus cumulative growth of 5.10% and 9.10% in the prior two years. As anticipated, the downward trend persisted in August, suggesting ongoing capacity clearance. Only sectors with better industry conditions, such as railway, ship, aerospace, and other transport equipment manufacturing, along with computer, communication, and other electronic equipment manufacturing, remain robust, while most other industries show varying degrees of weakness. Yet even these strong sectors appear more like high-level stagnation than sustained upward momentum.

Looking ahead, policy-based financial instruments may provide some support to manufacturing investment, but the overarching issue of overcapacity remains unresolved, making it challenging to reverse the downward trajectory. The assessment of passive inventory destocking continues. If subsequent data on prices, investment, or medium-to-long-term corporate loans show further expansion, a transition to active inventory restocking could follow, potentially ushering in the "real economy bull market" previously emphasized.

Infrastructure investment declined 4.00% year-on-year, down 0.40% from the prior month, compared to cumulative growth of 5.42% and 7.87% in the past two years. The full scope of the data underscores a bifurcated recovery, with external demand holding up better than internal drivers, even as the pace of decline slows overall.