China’s Economic Recovery Slowed In April

BEIJING—China’s economic activity grew at a slower pace in April as retail sales missed expectations, complicating the picture of a steady and balanced recovery in the world’s second-largest economy.

Official data released Monday showed industrial output and fixed-asset investment beating market expectations and continuing to lead the recovery, but domestic consumer spending, which has lagged behind for months, remaining soft.

China’s industrial production in April was up 9.8% from a year earlier, slower than March’s 14.1% pace, the National Bureau of Statistics said Monday. Fixed-asset investment decelerated as well, to 19.9% in the January-April period from 25.6% in the first quarter.

Retail sales, a key gauge of China’s domestic consumption, underwhelmed: April’s figure was up 17.7% from the pandemic-hit level a year earlier, well short of March’s 34.2% pace.

Economists had largely expected the double-digit year-over-year percentage growth that major indicators delivered, given the low-base of comparison from a year earlier, when China’s economy had just begun to bounce back from the coronavirus shock. In the coming months, however, that “low-base effect” will fade, given the economy’s recovery during the spring and summer last year.

Monday’s figures on industrial output and fixed-asset investment actually exceeded the forecasts of economists polled by The Wall Street Journal, who had pegged 9.1% and 19.2%, respectively. Retail sales, however, missed their predicted 24.9%.

To strip out last year’s pandemic distortions, government statisticians and economists have benchmarked this year’s numbers against 2019’s. By that measure, official data showed industrial production up 14.1% in April, largely in line with March’s growth rate, while the pace of retail-sales slowed to 8.8% from March’s 12.9%.

The retail-sales miss was a particular disappointment for economists and policy makers, who have been watching for several months for signs of a tilt toward consumption-driven growth in the Chinese economy, after more than a year of expansion led by manufacturing and exports.

For the Chinese economy as a whole, says Ding Shuang, an economist at Standard Chartered, “The problem is not the growth rate, but its unbalanced recovery. Some sectors, such as industrial activity, appeared to be too hot, while others, like service and consumption, haven’t yet recovered to pre-virus levels.”

China’s strong rebound from the Covid-19 pandemic last year was largely driven by its swift factory resumption and government-led investment, while household spending has repeatedly fallen short of expectations.

Pointing to the softness in domestic spending, the Chinese Communist Party’s Politburo—its top decision-making body—said last month that the economic recovery remains uneven and its foundation less than solid.

China’s gross domestic product reported a record year-over-year gain of 18.3% in the first quarter. That makes meeting Beijing’s official target of “above 6%” growth for 2021 a relatively light lift.

Economists argue that the modest growth target leaves Beijing’s policy makers with more wiggle room to address longer-term structural problems in the economy—such as high leverage, potential asset-price bubbles and, in particular, the weakness of domestic consumption.

Chinese policy makers face a dilemma, Louis Kuijs, an economist with Oxford Economics, told clients in a note Monday: While Beijing wants to dial down leverage generally, the persistently weak consumption numbers may increase “pressure to pursue a more pro-growth macro policy that could increase financial risks and leverage.”

April’s lacklustre consumption data came even as China’s labour market showed signs of improvement. The urban surveyed unemployment rate, China’s headline jobless figure, dropped to 5.1% in April, the lowest level in more than a year.

In a briefing Monday, Fu Linghui, a spokesman for China’s statistics bureau, acknowledged the imbalance in the economic recovery, but said the improving labour market and increasing household income would lift consumption.

Iris Pang, an economist with ING Group, said April’s consumption weakness might prove short-lived, with figures for the five-day Labor Day holiday at the start of May indicating robust spending.

Over the holiday, Chinese people made a total of 230 million trips, marking the first time that traveller numbers topped pre-virus levels. The nation’s box office also broke records for revenue and number of moviegoers.

Meanwhile, though fewer cities in China reported rising home prices in April, average new home prices nationwide in April were up 4.45% from a year earlier, official statisticians said Monday, following a 4.36% year-over-year rise in March—underscoring the challenge that policy makers face in reining in home prices.

The stock market had a decent summer. Investors are bracing for a bumpier fall.

In the past couple of months, equity investors cheered soaring profits at big companies, shrugged off jitters in the bond market and nudged megacap tech shares back near records.

Now, as the post-Labor Day stretch begins, a number of new challenges lie ahead: ever-shifting odds of an interest-rate increase from the Federal Reserve. Sky-high expectations after a stunning earnings season. The persistent threat of higher consumer prices as fighting in the Middle East drags on.

“You’re moving from this earnings-driven market to this macro-driven market with the Fed, inflation and interest rates in focus,” said Keith Lerner, chief investment adviser for Truist Advisory Services. “It tends to be a choppier period.”

Historically, every major U.S. stock index experiences its worst average return in September. The Dow Jones Industrial Average has slid an average 1.1% in the ninth month of the year, in data that dates back to the 19th century. The S&P 500 has seen the same average decline—and for every September dating back to 1928, the benchmark ends the month lower more than half of the time.

Analysts caution against reading too much into those seasonal patterns. But in recent weeks, new reasons for investor caution have emerged. One of the largest: the looming threat of an interest-rate increase from the Fed, which announces its next policy decision on Sept. 16.

Chairman Kevin Warsh’s decision to ditch forward guidance and take more of his cues from markets has muddied the waters for investors when it comes to monetary policy. That has left traders scouring Fed governor speeches and economic-data reports for clues on the central bank’s next move.

“There’s going to be a lot of eyes on those numbers,” said John Luke Tyner, head of fixed income and portfolio manager at Aptus Capital Advisors.

The past couple of weeks offered just one example of how frequently those expectations can change. After Warsh struck a hawkish tone during remarks on Aug. 28, the odds of a hike at the Fed’s next meeting jumped from 35% before the speech to 58%, according to CME FedWatch data.

On Thursday, Fed governor Christopher Waller made a case for leaving rates where they are. Interest-rate futures showed coin-flip odds between a hike and a hold. Then Friday’s robust jobs report amped up rate-hike bets once more, back to a roughly 60% chance of higher rates after the meeting.

“Rates have really been driving the car for equities the last few weeks,” said Ross Mayfield, an investment strategist at Baird.

That uncertainty comes as an unruly bond market could put pressure on stocks. Treasury yields have marched higher for much of the summer, driven by concerns about rising oil prices, growing U.S. budget deficits and a deluge of tech-company bonds now competing for investors’ cash. Last week, the rout went global, pushing yields to multiyear highs in Japan, Germany and the U.K.

Higher bond yields can drag on stock prices and lift borrowing costs for companies and consumers across the economy.

Rising prices remain the top concern for bond traders, and continued fighting between the U.S. and Iran has done little to ease those worries. The national average price of diesel climbed to a record of $5.850 on Friday, according to AAA. That is up from $3.712 a year ago.

Investors will get more insight on the path of prices this week, with the much-awaited consumer-price index report due Friday and a reading on producer prices Thursday.

With another blockbuster earnings season in the books, some analysts have also warned that any boost from the third-quarter reports due in the coming months could be minimal. Back-to-back quarters of standout profits have raised expectations and made it especially difficult to impress traders. Custom-chip company Broadcom, for example, said Wednesday that it more than tripled its earnings and nearly doubled its revenue. Shares slipped 2.7% the next session.

Many analysts note there are plenty of reasons not to panic. The economy is in impressive shape, thanks to a healthy labor market and the rippling effects of the artificial-intelligence investment boom. Profits are booming at America’s biggest companies. The Cboe Volatility Index has dropped to its lowest levels of 2026. Credit spreads are tight, a sign bond investors aren’t concerned about economic conditions that could hurt companies.

But the mood has shifted from the euphoria that felt tangible when the Nasdaq was notching back-to-back records early this summer. The question, Mayfield said, is whether the fundamentals that have bolstered the bull market so far can stretch the rally into 2027.

“There are more anxieties or uncertainties about the backdrop,” he said. “It does feel like a transitional moment.”

China’s Economic Recovery Slowed In April

Growth in retail sales slowed sharply from March pace.

Investors are bracing for a bumpier fall stock market due to shifting odds of a Federal Reserve interest-rate increase and other macro challenges.