China’s retail sales growth unexpectedly weakened in November despite signs of improvement in the housing market, highlighting the urgency for Beijing to further encourage residents to spend.

Retail sales rose 3% from a year ago, the slowest pace in three months and undershooting even the most bearish of forecasts. Industrial output increased 5.4%, keeping momentum as the manufacturing side of the economy continues to outperform consumer spending.

“The data show that the recovery in domestic demand has remained sluggish, while the stabilization in industrial production was likely due to some order front-loading ahead of US tariffs and is not sustainable,” said Michelle Lam, Greater China economist at Societe Generale SA.

The CSI 300 Index of onshore stocks fell after the data release to trade as much as 0.6% lower. The benchmark 10-year yield extended a decline, falling 6 basis points on the day to a record low of 1.72%. The yuan was steady in both onshore and offshore markets.

The data released by the National Bureau of Statistics on Monday underscores the need for Beijing to reignite consumers’ willingness to spend, especially after the reelection of Donald Trump as US president. The threat of a new trade war may diminish exports’ role as a growth driver after contributing to nearly a quarter of economic expansion this year.

The weakening in retail sales was surprising following strong sales of home appliances and cars a month ago thanks to government subsidies. While sales for those two categories remained strong in November, a number of discretionary goods recorded a slump. Cosmetics led the decline with a 26% plunge in sales from a year ago, while those of clothing, jewelry, beverages and tobacco and alcohol also decreased.

The disappointing consumption figures overshadowed signs of improvement in the troubled property market. Price declines eased for a third month in November, reflecting the effect of policy stimulus introduced in late September including lower taxes related to transactions.

Home sales grew in year-on-year terms in November for the first time since the economy re-opened in the first quarter of 2023 from Covid lockdowns, based on Bloomberg Economics’ calculation of official data. Floor space sold in November rose 2.7% from a year ago following a 1.8% decline in October.

NBS spokesperson Fu Linghui attributed some of the slowdown to the fact that the Singles’ Day online shopping festival — traditionally held on Nov. 11 each year — started earlier than usual in October this year, which squeezed sales last month. 

“Looking at the overall retail sales in October and November, it was still significantly better than that in the third quarter,” Fu said in a press briefing in Beijing. “But the internal drive of consumption growth still needs to be strengthened.”

The data came just days after Chinese policymakers elevated boosting consumption to the top priority for economic work next year, only the second time in at least a decade. They listed a few areas of focus including helping lower-income groups and improving the social safety net, although Chinese leaders left investors guessing on the scale and specifics of their plans.

Officials have said they will expand the cash-for-clunker program that subsidizes purchases of home appliances and cars with central government funds this year. But economists warned the effect may be temporary because consumers are unlikely to repeat large-ticket purchases in a short period of time. The government has resisted proposals from economists to hand out cash to consumers in recent years, with President Xi Jinping warning against falling into a trap of “welfarism.”

“The big picture remains the supply-demand imbalance, which still points to a deflationary outlook,” Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd.

The growth in industrial production has outperformed retail sales since the pandemic, but this may not be a sustainable way to propel the economy as Beijing’s manufacturing push has seen the US and European Union accuse China of flooding their markets with cheap goods. 

A slowdown of economic expansion in the last quarter to the weakest since early 2023 has prompted policymakers to deliver out-sized interest-rate cuts and support for the property and stock markets. Authorities also rolled out a $1.4 trillion debt swap program to curb debt risks faced by local authorities and free up fiscal room for them to promote growth.

Governments at all levels accelerated bond sales in recent months, with net financing exceeding 1 trillion yuan ($138 billion) for four straight months through November. China has promised to increase public borrowing and spending next year to stimulate demand, but the scale of increase is likely to remain modest and not aggressive enough to reverse persisting deflation and dwindling confidence.

China’s retail sales data show private demand remain frail and the stimulus efforts have “prioritized optics over delivering meaningful economic improvements,” said Charu Chanana, chief investment strategist at Saxo Markets.

This means the government “needs to do more target fiscal measures to help boost business and consumer confidence. Even for a tactical recovery we need more after a series of false starts and the risk of tariffs ahead.”