Why is consumption strong? A discussion on May's retail sales

Core Viewpoint

In May, retail sales increased significantly by 6.4% year-on-year and 0.9% month-on-month, both reaching new highs since 2024, attracting market attention.

The high growth in retail sales in May is attributed to three resonating factors: the early mid-year promotions, the Dragon Boat Festival falling in May, and the support from national subsidy funds. Correspondingly, the growth of home appliances and audio-visual equipment (53%) and communication equipment (33%), both categories of national subsidy products, was the most rapid; the consumption of tobacco and alcohol needed for visiting relatives and friends was also released early, and retail of sports and entertainment products benefited from the ongoing weight management year. The improvement in automotive consumption was limited, while consumption in the real estate chain, such as furniture and building materials, weakened.

Can the strong retail sales be sustained? Our judgment is relatively conservative. In the short term, the driving factors in May may overdraw the consumption performance in June. In the medium term, the core factor affecting consumption trends is disposable income. The rush for exports and transshipments has led to a tidal effect in production and employment data, with income expected to be weaker than in the first half of the year, unless additional policies are implemented.

Event & Brief Commentary

On June 16, the National Bureau of Statistics released economic data for May 2025.

Among them, retail sales in May increased significantly by 6.4% year-on-year and 0.9% month-on-month, both reaching new highs since 2024, showing outstanding performance.

In the economic data released today for May, the market is most concerned about the performance of retail sales. This is not only because retail sales in May increased by 6.4% year-on-year, significantly exceeding expectations, but also due to the recent market trading in new consumption, with the market maintaining a certain level of enthusiasm for tracking the consumption sector.

In the face of the significantly exceeding expectations of retail sales year-on-year, the market has two questions: why did retail sales in May significantly exceed expectations, and does the exceeding of expectations reflect a sustained strengthening of consumption? We analyze these two questions.

1. Early mid-year promotions, the implementation of national subsidy policies, and the misalignment of the Dragon Boat Festival jointly drove the high growth of retail sales in May.

The structure of retail sales clearly depicts the direct reasons for the significant rebound in retail sales year-on-year in May.

First, the rapid growth of home appliances and audio-visual equipment (53%) and communication equipment (33%) as national subsidy products, significantly increased compared to April.

Home appliances and audio-visual equipment accelerated by 14.2 percentage points, and communication equipment accelerated by 13.1 percentage points.

The underlying factors include the early mid-year promotions; this year, Taobao, Tmall, and JD.com launched the "618" promotional activities simultaneously on May 13, earlier than last year.

Secondly, this year's "618" promotional activities received support from national subsidies, further stimulating consumer demand.

Thirdly, this year's Dragon Boat Festival falls on May 31, allowing consumers more time for offline selection and experience, while last year's Dragon Boat Festival was on June 10.

Second, the growth rate of tobacco and alcohol (11.2%) also significantly increased, accelerating by 7.2 percentage points compared to April.

This may also be related to the Dragon Boat Festival being misaligned to May, with the consumption of tobacco and alcohol needed for visiting relatives and friends being released early.

Third, the growth rate of sports and entertainment products (28.3%) also significantly increased, accelerating by 5 percentage points compared to April. This year marks the first government-promoted Weight Management Year, which has to some extent stimulated a surge in fitness consumption among the public, leading to a continuous rise in the retail growth of sports and entertainment products.

Fourth, the improvement in automobile consumption is limited, while consumption in the real estate chain, such as furniture and building materials, has weakened.

In May, automobile retail sales increased by 1.1% year-on-year, a slight increase of 0.4 percentage points from the previous month, showing no significant change.

The retail growth rates for furniture and building materials were 25.6% and 5.8%, respectively, down by 1.3 and 3.9 percentage points, consistent with the slowdown in sales following a brief recovery in the real estate market.

II. Can the strong retail sales continue? We hold a cautious view on this.

In the short term, the early mid-year promotions in May, the implementation of national subsidy policies, and the staggered timing of the Dragon Boat Festival are factors driving high growth in retail sales, but these may also preemptively affect consumption performance in June.

Retail sales in June may significantly weaken month-on-month, and year-on-year growth is expected to slow slightly due to the impact of a lower base.

The most critical factor, the national subsidy, may have been consumed quickly in May, and since June, some regions have not been able to effectively continue funding, leading to a suspension of the implementation of national subsidy policies once the funds are exhausted.

In the medium term, the core factor affecting consumption trends, both theoretically and in actual data, is disposable income.

After the rush for exports and re-exports has receded, we expect that as export growth slows in the second half of the year and employment pressure in the foreign trade sector increases, consumption momentum will be further constrained unless additional policies are implemented.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk