THE DRAGON HAS NO TEETH:

MarketWatch: How bad is the situation in China?

Leland Miller: Since 2012, when we started collecting data, we have never seen our headline index turn negative. This month it did. Our flash data shows nearly every major measurement is in contraction. I do always stress that this is early data.

(Only about half of the roughly 3,500 firms that report in the full-month version contribute to the flash report.) [...]

MarketWatch: Which is the single data point that's most telling to you?

Miller: The numbers in the property sector are remarkable. It confirms this sector is at the bottom of the food chain in China right now, the last priority for Beijing in a long list of priorities. Property is extremely important because it's the sector in which most Chinese have large portions of their wealth. Chinese people can't get money out of the country so they're stuck with only a few opportunities to diversify. The bond market is scary. The stock market is scary. Property has always been the least scary thing and the Chinese government has always known how important it is as a store of household wealth. It shows they're more afraid of the bankruptcies of small and medium-sized enterprises. At least there may finally be a culling of the herd in terms of (real estate) developers and overleveraged firms allowed to die.

On the positive side, we're seeing the job growth numbers in slight contraction. It's remarkable they're not much worse than that. This is an economy that could be in contraction for a long time, yet firms aren't firing people. You can't pay your people, you have no cash flow, no customers, so you're paying them to stay home right now. (The lack of layoffs) is one reason you're not seeing central bank stimulus yet.

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