Economy Watch: China Drops Growth Estimate, Wants Stronger Consumer Economy

The People's Republic of China, whose economy has been mostly out of the news in recent months was suddenly back in the news on Monday, when the government lowered its GDP target to 7.5 percent from 8 percent.

The People’s Republic of China, whose economy has been mostly out of the news in recent months—though still rife with newsworthy possibilities, such as a declining property market—was suddenly back in the news on Monday, when the government lowered its GDP target to 7.5 percent from 8 percent, the first lowering of the target since 2005. On the face of it, that might not sound like a large change, but in a country with an estimated GDP of $5.93 trillion (2010) and a population of 1.3 billion, even small shifts add up.

An easing of growth for the Chinese economy would be, in some ways, worrying for the world’s economy. Despite the worldwide economic dislocations of recent years, the Chinese economy has grown steadily (10.4 percent in 2010, for example) which, among other things, has allowed the sale of a great deal of U.S. debt to that country. On the other hand, slower Chinese growth might reduce demand for certain commodities whose higher prices have been vexing the rest of the world lately—oil, for instance.

Speaking at the annual meeting of the National People’s Congress (during which Chinese leaders used to set targets for five-year plans or denounce the Gang of Four), Premier Wen Jiabao said that the country is going to reduce its dependence on exports and capital spending, and put a stronger emphasis on consumption, just like in the developed world. Let a 1,000 big box stores bloom, in other words.

ISM Non-Manufacturing Index strengthens

The Institute for Supply Management reported on Monday that its Non-Manufacturing Index stood at 57.3 percent in February, or 0.5 percentage points higher than the 56.8 percent it registered in January. Most of the non-manufacturing industries tracked by the ISM—14 out of 17—saw expansion during the month, including some beaten badly in recent years, such as real estate and construction. Three industries reported contraction, however: management of companies and support services, retail trade and health care.

The organization’s Non-Manufacturing Business Activity Index came in at 62.6 percent in February, compared with 59.5 percent in January, thus posting growth for the 31st month in a row. The New Orders Index increased month-over-month by 1.8 percentage points to 61.2 percent, while the Employment Index decreased by 1.7 percentage points to 55.7 percent, indicating continued growth in employment, but at a slower rate.

The ISM noted a touch more inflation than in recent months, attributable mainly to the usual suspect among inflation drivers, fuel prices. Its Prices Index increased 4.9 percentage points to 68.4 percent, indicating prices increased at a faster rate in February than January. “The majority of comments from the respondents reflect a growing level of optimism about business conditions and the overall economy,” noted Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee, in a statement. “[But] there is a concern about inflation, rising fuel prices and petroleum-based product costs.”

G8 skips Windy City

In a sudden change of plans, the Obama administration has decided that the upcoming G8 summit, previously scheduled for Chicago, will instead be at Camp David, Maryland in May. The G8 summit involves the meeting of the world’s most powerful governmental moneymen (except for China), and while official statements from the White House denied that the prospect of protests had anything to do with the change, the last time there were mass protests in Chicago during a presidential election year, it didn’t bode well for the Democratic candidate.

Wall Street, seemingly upset about the news from China, dropped sharply in the morning and ended the day down on Monday (European and Asian stocks lost ground, too). The Dow Jones Industrial Average lost 14.76 points, or 0.11 percent, while the S&P 500 was down 0.39 percent and the Nasdaq, led by an unusual Apple decline, was off 0.86 percent.