China’s May data shows firmer factory output but weaker consumer demand

China’s latest monthly data painted a mixed picture in May, with factory activity proving somewhat more resilient than expected while consumer spending and investment continued to weaken. The figures reinforced the view that the country’s recovery remains uneven, with domestic demand still struggling to regain momentum even as parts of the industrial sector hold up better than forecasts suggested.

According to the data reported by multiple outlets, industrial production rose 4.5% year on year in May, beating the 4.2% increase expected by economists and improving from 4.1% in the prior month. That outcome offered a measure of support for the growth picture, showing that manufacturing and related activity continued to expand at a moderate pace despite broader economic softness.

The stronger-than-expected industrial reading was offset by a more troubling performance in household consumption. Retail sales fell 0.6% from a year earlier, compared with expectations for flat growth and after a 0.2% increase previously. It was the first contraction in retail sales since December 2022, a sign that consumer demand lost further traction in the month and that spending conditions remained fragile.

The decline in retail sales stood out because it marked a clear break from the modest gains seen earlier in the year. Analysts and market participants closely watch the measure as a gauge of household confidence and discretionary spending, and the fresh drop suggested that the consumer side of the economy was not keeping pace with industrial activity. In FXMARE’s view, the data reinforces a growth narrative that has become more uncomfortable for commodity and consumer-linked markets, particularly where demand from China is an important driver.

Investment indicators also added to the sense of cooling momentum. Fixed asset investment in the year to date was reported at -4.1% year on year, weaker than the -2% forecast and down from -1.6% previously. That reading pointed to further contraction in broader urban and infrastructure-related investment flows, indicating that businesses and public projects alike may be proceeding more cautiously than anticipated.

Taken together, the May figures suggested that China’s economy is still supported by pockets of industrial strength, but that the broader expansion remains under pressure from weak household demand and softer investment. The contrast between the relatively solid industrial number and the deterioration in retail sales and fixed asset investment highlighted the uneven nature of the recovery. For markets that track China closely, the data added another layer to concerns that growth is becoming increasingly dependent on selective areas of output rather than a broad-based rebound.