August Economy: Can Stock Market Gains Drive a Rebound in the Real Economy?

After the economic slowdown in July, can the surge in the stock market in August transmit improvements to the real economy? We believe the most direct reflection is the rebound in the services PMI and the services production index, which will also alleviate the downward pressure on the economy.

However, as the pull effect of the "two new" policies gradually declines, external demand slows down, and the "anti-involution" adjustments continue to exert pressure, structural differentiation in the economy remains evident. If the "warming" of the stock market in August is to break the "cooling" of the economy, we still need to wait for further signals of re-inflation.

The "summer" heat of the capital market in August will effectively drive the indicators of the services sector. From a statistical composition perspective, both the services PMI and the services production index are calculated based on the value added of the service industry categories anchored in the "National Economic Industry Classification," with the financial sector holding a significant weight.

Historical trends indicate that the Shanghai Composite Index often resonates in sync with the services PMI and the services production index, especially during strong upward movements in the stock index. Therefore, we expect that with the A-shares reaching a ten-year high, the services PMI and services production index in August will also "rise with the tide."

Investor confidence has shown signs of stabilization, while the recovery of consumer confidence appears slightly lagging. Although the third batch of national subsidy funds was "rushed" in at the end of July, the policy-driven effects have gradually entered a plateau phase, coupled with the optimization and adjustment of subsidy regulations, the growth rate of automobile and home appliance sales in August has further declined. We expect that under the backdrop of the "two new" policies' boosting effects somewhat "fading," the growth rate of social retail sales in August may stabilize and trend downwards, with the overall consumer market entering a new phase of structural optimization.

Meanwhile, the risk of "tide receding" in external demand is vaguely visible. With the implementation of a new round of tariff measures on August 7 (the new round of tariffs from the Trump administration officially took effect), the U.S. "import grabbing" behavior is also gradually receding. High-frequency data shows that since August, the volume of container shipping from China to the United States has significantly weakened compared to the same period in 2024, and the CCFI indices for the East and West Coast routes continue to decline. Overall, exports in August face certain slowing pressures, and the challenge of "stabilizing foreign trade" remains.

"Stabilizing Foreign Trade" and "Countering Involution" pose dual challenges for enterprises, and the road to restoring corporate expectations is long. In addition to the pressure on exports, the "counter-involution" policy, while promoting the optimization of the supply-side structure, will still constrain the willingness of industrial enterprises to expand production to a certain extent in the short term. Our constructed industrial prosperity index indicates that the likelihood of further slowing industrial added value in August is high. Driven by a cautious sentiment among enterprises, the improvement space for manufacturing investment and manufacturing PMI is also expected to be limited. Our PMI prediction model also shows a high probability of a month-on-month decline in manufacturing PMI in August.

In contrast, infrastructure investment is less correlated with private enterprises, and its recovery elasticity is relatively stronger. As short-term disruptive factors such as natural disasters fade, the growth rate of infrastructure investment in August is expected to rebound. From high-frequency data, the asphalt operating rate has begun to show a recovery trend since August after a temporary decline caused by extreme weather; at the same time, the cement price index also showed the "light of a turning point" at the beginning of August. These signs may indicate that the infrastructure sector is releasing positive signals of marginal improvement.

Another noteworthy "surprise" comes from the price side: the boost from "counter-involution" to industrial product prices may be faster than expected. Currently, the high-frequency South China Industrial Products Index has already rebounded year-on-year, indicating that the closely related PPI is also expected to "take over and rise." In addition, several upstream raw material prices have only gradually stabilized since late July, but due to the PPI survey pricing being concentrated on the 5th and 20th of each month, the July data may not have fully captured the signs of stabilization. This lag effect is expected to be more clearly reflected in the August PPI data, further confirming the marginal improvement in the price environment on the industrial side.

In addition to the above indicators, there are two major highlights in August that cannot be ignored. First is the performance of the youth unemployment rate, which has shown a seasonal increase in July and is higher than the same period last year. If it further breaks through last year's high point in August, the necessity and urgency of demand-side policies (especially employment stabilization measures) will significantly increase.

Second, the issuance of government bonds has slowed down, and the fiscal pulse is weakening, which may constrain the support for infrastructure and other areas within the year (including the special new bonds issued from January to August, which have exceeded the annual quota). This may also force macro policies to become more proactive.

Author of this article: Tao Chuan, Zhong Yumei, Source: Chuan Yue Global Macro, Original title: "August Economy: Can the Stock Market Rise Drive a Rebound in the Real Economy? (Minsheng Macro Tao Chuan Team)"

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