A surge in Chinese spending last month has spurred more optimism about the country’s economic rebound, though weakness among manufacturers and sales of cars and homes still suggest the recovery isn’t yet on sure footing.

Catering, tourism and other in-person businesses recorded big jumps in revenue over last week’s Lunar New Year holiday, recent data has shown. That added to strong figures from an official survey released this week on services activity, which rebounded as people in China became more willing to travel and spend money following the end of strict Covid Zero curbs.

The faster-than-expected reopening comes alongside economic growth forecast upgrades from the International Monetary Fund, as well as a slew of investment banks, including Nomura Holdings Inc, Guotai Junan International Holdings and Huatai Securities.

Not all the data is positive. Sales of durable goods such as cars remain tepid, with major carmakers monitored by the Ministry of Commerce reporting just a 3.6% uptick during the holiday period compared to a year prior, an official said earlier this week. That trailed a nearly 7% increase in revenue among major retail and catering firms.

Home sales, meanwhile, continue to be a drag, with the 100 biggest real estate developers reporting a 32.5% plunge in sales in January from a year earlier, steeper than December’s decline. Sliding housing prices have kept buyers away, even though policymakers have expanded stimulus for the industry.

“Pent-up demand might be limited to in-person services,” Lu Ting, Nomura’s chief China economist, wrote in a report on Tuesday. The firm raised its 2023 gross domestic product growth forecast to 5.3% from 4.8% on a “faster than expected” transition to herd immunity, though Lu noted that some weakness remains. 

“Durable goods consumption may not benefit much,” he wrote, adding that car sales could become a “significant drag” as a tax cut encouraging purchases expires. 

The industrial sector will also likely take more time to recover from the impact of Covid disruptions. The holiday period is traditionally a slower time for manufacturers, given that workers largely go home to celebrate with their families. The wave of Covid that hit the country as restrictions were dropped also likely contributed to worker illnesses. 

An official gauge of manufacturing activity signalled expansion in January, albeit only slightly. On Wednesday, a private survey showed smaller firms are still struggling, with that index remaining in contraction for a sixth consecutive month. 

“If the message from Tuesday’s strong official PMIs was that China has started a brisk recovery, the message from Wednesday’s Caixin report is that a significant swath of the economy continues to struggle. To be sure, the rise in the Caixin manufacturing gauge in January reinforces our view that conditions are on the mend. But a reading still below 50 in contractionary territory suggests exporters and small companies are lagging in the recovery,” said Bloomberg Economics economist Chang Shu.

“The pandemic continued to take a toll on the economy in January,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying that release. “But optimism in the sector continued to improve as businesses expected a post-Covid economic recovery.”

  - Bloomberg