Morgan Stanley China Consumer: China Retail Sales – May 2026: Weakness Remains
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China's retail sales data for May 2026 continued to show weakness, with year-over-year growth of 3.2% falling below the market consensus of 4.0%. Morgan Stanley identifies soft consumer confidence and a diminishing property wealth effect as the principal drags on spending. Essential consumer goods, including food and daily necessities, grew 5.1%, outperforming the broader market. In contrast, discretionary categories such as apparel and home appliances expanded only 1.8%, representing a 0.5-percentage-point deceleration from the prior month.
Online retail sales increased 6.5%, with penetration rising to 28.3%, though growth slowed 1.2 percentage points compared with the same period in 2025. Property-related consumption, including furniture and building materials, declined 2.1%, marking three consecutive months of contraction. The consumer confidence index dropped from 98.5 in April to 97.2, hitting its lowest level since 2024.
Labor market uncertainty continues to suppress consumer willingness to spend. Marginal returns from policy stimulus are diminishing, and a new round of consumption subsidies has yet to materialize. Morgan Stanley maintains an underweight stance on the consumer sector, projecting that second-half retail growth will trail GDP. Without large-scale stimulus, retail growth could decelerate below 2.5%. Downside risks include further labor market deterioration and continued property price declines.
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