A peek under the hood of China’s third-quarter GDP report

Bloomberg

With the world’s second-largest economy stable for now, you’ll need to look under the hood to see where the real action is when China releases its third-quarter economic report card on Wednesday.
Gross domestic product probably expanded 6.7 percent from a year earlier in the three months through September, the same pace as the previous two quarters and smack in the middle of the government’s full-year target pace, according to a Bloomberg survey of economists ahead of a report due Wednesday at 10 a.m. in Beijing. Industrial output, fixed-asset investment and retail sales all likely picked up last month, surveys show.
With deflationary pressures abating and a weaker currency cushioning the blow from tepid trade, China’s economy has again defied its doomsayers. Yet the cost of that stabilization has been more debt that’s fueled a property frenzy in China’s biggest cities. For a gauge of whether China can keep the good times rolling, here are some themes to keep an eye on in the reports.

Real Estate Investment
While prices have surged in cities like Shenzhen, Shanghai and Beijing, developers have remained largely cautious on a national level by their historical standards. The latest data on completed property investment will show whether developers are buying into the price frenzy or remaining level headed. While an increased turnover of apartments fuels realtors paychecks and the services sector, it’s construction that really stokes the economy by firing up demand for concrete, glass, steel and other raw materials.

Animal Spirits
The economy’s stabilization in 2016 has been underpinned by government spending on everything from shanty town upgrades to new pipe networks. Private investment, meantime, seemed to be in chronic decline. Until August that is, when private investment in fixed assets stabilized. Any pick up would be an upbeat sign for the economy’s momentum.
As private firms tightened their purse strings, state-owned companies opened theirs. Watch for any movement here to get a read of the government’s latest policy stance.

Inflation
A read of economy-wide inflation should show the return of some kind of pricing power for Chinese companies and a resulting decline in real borrowing costs. The GDP deflator– the difference between the headline growth rate (adjusted for inflation) and the nominal growth rate (unadjusted for inflation) — usually falls somewhere between the consumer price index and the producer price index, which just turned positive after more than four years of deflation.
With economists dialing back expectations for additional monetary stimulus — and some already mulling a switch toward tightening in the not-too-distant future — a significant move higher in the deflator could be a policy altering event.
Leaders and Laggards
Outcomes in China’s continent-sized economy are diverging — between regions and among sectors. Case in point: the car making industry’s output rose 21.4 percent from a year earlier in August while metal smelting and pressing languished. Wednesday’s industrial report will give the latest look at which industries are on the rise and which are headed in reverse.
On Thursday at 9:30 a.m. Beijing time, a GDP breakdown will reveal the growth pace of different sectors. Mark the diary for this encore to the main report, which will shed light on the state of rebalancing and the health of a services sector that now accounts for more than half of economic output.

Labour Market
Updates on the all important job market should also be released at or around the GDP press briefing. While Premier Li Keqiang recently said the jobless rate fell under 5 percent, a spokesman for the statistics authority may give a more detailed reading. A report by the Ministry of Human Resources and Social Security to be released some time around Wednesday will show the ratio of job seekers to job vacancies, and which regions and sectors are hiring. More solid news on this front may convince policy makers they don’t need to throw in additional monetary and fiscal stimulus.