What is more likely to inspire fear is information recorded in an interesting article by Geoff Dyer in today’s Financial Times.  One of the things that had surprised me recently was the continued strong domestic demand in September.  I had expected that as the buying spree associated with the Olympics wore off, we would see a sharp drop in the growth rate of domestic consumption.  So far that hasn’t seemed to happen except in certain big-ticket items, like cars and apartments.

In fact in September retail sales – the best available but not always satisfactory proxy for household consumption – grew at a record pace in nominal terms, around 23% year on year, and with the decline in CPI inflation this translates into even higher relative real terms.  But the things that we can measure didn’t hold up as well as that might imply.  

Car sales, for example, in September were down around 4% (I am quoting from memory, so the number may be wrong), which is the first time this has happened in many years, and I am hearing that October isn’t going to be much better.  Fewer people flew on domestic airlines last month than they did in September of last year.  And not only are real estate prices dropping quite quickly, but volume seems to have collapsed.

Yet the September numbers show healthy retail sales growth.  Perhaps weakening demand will show up in October numbers.  According to Dyer’s article:

Signs are growing that China’s economy could be cooling quicker than expected, with a string of big industrial companies announcing production cuts over the past week.  The cuts have come as anecdotal evidence from other companies suggests a surprising weakening of demand in October amid the global financial crisis and a local housing market slowdown.

…”Orders for cars and home appliances have already begun to shrink,” Xu Lejiang, chairman of Baosteel, China’s biggest steelmaker, said last week.  Zhou Xizeng, analyst with Citic Securities, said steelmakers were trying to adjust rapidly to uncertainty about demand and an inventory build-up.