The resilience of the industry and insufficient demand are two sides of the same coin in the current economic operation. The economic performance in May, characterized by &#34;stable production, soft investment, and rising consumption,&#34; indicates that the second quarter is still in a policy observation period. In terms of total volume, the growth rates of the secondary industry (industrial added value) and the tertiary industry (service production index) are both around 6%, suggesting that a GDP growth rate of over 5% in the second quarter is basically assured; however, from a structural perspective, the uneven performance of industries under the headwinds of tariffs, combined with falling prices, some new &#34;variables&#34; facing the economy in the second half of the year are beginning to emerge:
Variable One: Can consumption outpace investment sustainably? Against the backdrop of rising &#34;trade friction&#34; this year, consumption has performed relatively better than investment. The &#34;deconstruction&#34; of consumption, along with policies such as &#34;trade-in for new,&#34; has played a crucial role and has synergized with the early start of &#34;618,&#34; jointly driving further expansion of retail sales in May year-on-year. Among them, core categories such as home appliances, communication equipment, and automobiles have shown impressive retail performance.
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However, looking ahead, the &#34;shortcomings&#34; of consumption may gradually become apparent. On one hand, the current consumption recovery relies more on policy &#34;support.&#34; With the use and consumption of policy funds, some regions have seen &#34;national subsidies&#34; paused or adjusted, and the continuation of consumption momentum still requires further policy reinforcement. On the other hand, commodity consumption shows a distinct characteristic of &#34;differentiation in volume and price,&#34; reflecting that there are still issues in the recovery of demand.
Variable Two: From the perspective of industrial production, the export climate is showing differentiation. Compared to large enterprises, small enterprises have more advantages in utilizing the U.S. Customs' &#34;First Sale Rule&#34; to avoid additional tariffs imposed by the U.S.: small enterprises have closer cooperative relationships with suppliers and can more easily obtain original pricing; moreover, small enterprises have shorter decision-making chains, allowing them to quickly adjust their supply chains based on the &#34;First Sale Rule.&#34; Therefore, large enterprises are more severely impacted by tariffs, as evidenced by the significant drop in the export delivery value growth rate of large-scale enterprises from 7.7% in March to 0.6% in May.
Variable Three: How to stop the decline in real estate after returning to a downward trend? Recently, the real estate market has frequently shown &#34;warning&#34; signals, with real estate investment, sales, and completed area in May further declining year-on-year, and the prices of first-tier cities, as a core barometer, have also shown continuous declines. The urgent task for policy response is to &#34;stop the decline.&#34; On June 13, the State Council made the latest deployment, and on the same day, Guangzhou took the lead in fully canceling the &#34;three limits.&#34; Looking ahead, urban renewal is expected to be the main focus on the supply side, while restrictive policies in core cities on the demand side may have further room for relaxation.
Variable Four: What is the resilience of manufacturing investment? Against the backdrop of increasing external risks, developing high-tech manufacturing and strengthening the security of industrial supply chains is the optimal solution to &#34;respond to uncertainty with certainty.&#34; Especially compared to other major economies globally, China's manufacturing value added per employee is relatively high, and the gap with the U.S. is smaller, giving it an advantage over the service industry
The upcoming &#34;emerging&#34; new policy financial instruments will also boost the growth rate of manufacturing investment to a certain extent.
Variable Five: The Sustained Momentum of High Infrastructure Investment Growth. Although the growth rate of both broad and narrow infrastructure slowed slightly again in May, we can infer from various data that the importance of &#34;stabilizing infrastructure&#34; still exists—the amount of fixed asset projects approved by the National Development and Reform Commission, which typically leads infrastructure investment by 6-9 months, remained at a historically high level in the first half of this year; at the same time, the asphalt operating rate has recently performed significantly better than the same period in 2024. This indicates that the willingness to construct infrastructure projects this year is not weak, and future infrastructure growth will remain in a neutral range.
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Consumption: The Early Start of &#34;618&#34; and the Synergy of &#34;Trade-in&#34;. In May, the seasonally adjusted retail sales increased by 0.93%, reaching a nearly two-year high, and the year-on-year performance was also significantly better than market expectations. The reasons for this include the early start of the &#34;618&#34; shopping festival (for example, Tmall advanced this year's &#34;618&#34; pre-sale to May 13), along with the &#34;trade-in&#34; program boosting retail in categories such as home appliances and communication equipment, leading to a year-on-year expansion of 6.5% in May's commodity retail. On the other hand, tourism consumption heated up during the May Day &#34;holiday travel&#34; period, and restaurant income also showed significant improvement, with its year-on-year growth rate rebounding to 5.9%.
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Looking ahead, the &#34;shortcomings&#34; of consumption may gradually become apparent. First, the early start of &#34;618&#34; has brought forward some consumer demand for goods, which will put pressure on subsequent year-on-year readings of retail sales. Second, as the funds from the &#34;trade-in&#34; program are used and consumed, some regions have seen a pause or adjustment in &#34;national subsidies,&#34; and the continuation of consumption momentum still requires further policy support. From recent high-frequency data, the significant rebound in automobile sales in May has once again contracted since entering June. Moreover, the current consumption recovery shows a distinct characteristic of &#34;differentiation in volume and price,&#34; as the prices of home appliance products, which have seen significant retail growth in recent months, have dropped sharply for two consecutive months, indicating that demand recovery still needs to be solidified.
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Industry: The Trend of Production Slowdown Continues. In May, the year-on-year growth rate of industrial added value fell to 5.8%, especially in upstream non-metallic, chemical raw materials, and rubber and plastic manufacturing, where production progress has noticeably slowed. Although the year-on-year growth of high-tech industries also declined from 10.0% in April to 8.6%, a small number of industries still exhibit certain resilience, particularly in the automotive manufacturing sector
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Industrial production is facing certain &#34;headwinds.&#34; On one hand, unlike the same number of working days as last year in April, the number of working days in May this year decreased by two days compared to the same month last year. Based on historical experience, this will more easily suppress the year-on-year growth rate of industrial added value. On the other hand, May showed signs of slowing exports. Amid ongoing external uncertainties and a decline in the value of industrial enterprises' export deliveries, companies continue to adopt a cautious strategy, leading to a slowdown in industrial production.
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Manufacturing: Under the cautious attitude of enterprises, investment is also slowing down. In the context of ongoing export uncertainties, corporate investment is also holding a wait-and-see attitude, with the year-on-year growth rate of manufacturing declining from 8.2% in April to 7.8% in May. Among them, the investment growth rate in upstream and midstream industries mostly declined, especially in midstream industries such as electronic equipment and electrical machinery, where the downward trend is most evident. In contrast, the investment intensity in the automotive manufacturing industry is less affected by external uncertainties, which we believe is effectively offset by the &#34;national subsidy&#34; policy to boost domestic demand against external demand fluctuations.
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Infrastructure: The prosperity level has declined again. In May, both broad and narrow infrastructure growth rates continued to fall, with the former showing a year-on-year growth rate of 9.2% (down from 9.6% in April) and the latter at 5.1% (down from 5.8% in April). Among them, the investment trends in the transportation and storage, and public facilities sectors are more pronounced in their weakness. In contrast, the public utilities sector still provides support for infrastructure investment, which also explains why the decline in broad infrastructure investment growth is smaller than that in narrow infrastructure.
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Real Estate: The recent decline rate has increased, and policies have initiated a new round of deployment. In May, the momentum for real estate recovery further slowed, with investment, sales, and completed area all showing varying degrees of year-on-year decline. The housing prices in first-tier cities, as a core barometer, also continued to decline (the new home prices in May turned negative month-on-month, and the second-hand home prices fell month-on-month for the second consecutive month).
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In response, the policy level quickly reacted and launched a new round of deployment. On June 13, Premier Li Qiang organized a State Council meeting, emphasizing the &#34;orderly establishment of relevant foundational systems for the new model of real estate development.&#34; On the supply side, urban renewal will be the main focus, with the issuance of new special bonds for storage and urban renovation accelerating this year. On the demand side, there is further room for loosening restrictive policies in core cities, with Guangzhou taking the lead on June 13 by fully canceling the &#34;three limits.&#34;
Authors of this article: Tao Chuan, Zhang Yunjie, Zhong Yumei, Source: Chuan Yue Global Macro, Original title: &#34;Five Major Variables in May Economic Data (Minsheng Macro Tao Chuan Team)&#34;
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Economic data for May shows that industrial resilience coexists with insufficient demand, and GDP growth in the second quarter is expected to exceed 5%. Whether the trend of consumption being stronger than investment can continue is key, and policy support is crucial for consumption recovery, but shortcomings may gradually become apparent. In terms of industrial production, large enterprises are significantly affected by tariffs, leading to a notable decline in export growth. The real estate market faces downward pressure, with investment and sales declining, and policies need to respond promptly to halt the downturn

- The economic performance in May shows stable production, soft investment, and rising consumption, indicating a policy observation period in Q2.  
- Key variables include the sustainability of strong consumption over investment, the impact of tariffs on industrial production, and the ongoing decline in the real estate market, prompting new policy measures.  
- Despite a slowdown in industrial output and investment, infrastructure projects remain a focus, with expectations for continued growth in construction activities.

The "Five Variables" of May Economic Data