Econintersect: The HSBC-Markit Manufacturing PMI (Purchasing Managers' Index) Flash (preliminary) reading for February fell from the January reading of 52.3. The 50.4 number was far below the expected value of 52.2 and the lowest reading in four months. The value of 50 represents the boundary between expansion (above 50) and contraction. The disappointing reading increases concern that the recent rebound in economic activity in China may be losing steam. The country spent much of 2012 struggling with slowing growth.
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Analysts will be anxiously watching the final reading for the HSBC index next week and also the official government PMI due out at the same time. HSBC surveys medium and smaller privately held companies while the government survey covers large companies, many of which have government ownership. The HSBC number is considered more sensitive to exports and to domestic consumption than is the government survey which has strong dependence on government spending.
Bloomberg reports that exports were higher than expected in February so the data is not entirely consistent. However, concern was expressed about the strength of Chinese recovery. From Bloomberg:
“It casts some shadow over China’s recovery,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong and a former researcher for the International Monetary Fund. “Chinese economic fundamentals may prove weaker than previously expected.”
China’s economy expanded 7.9 percent in the final three months of 2012 from a year earlier, the first pickup in eight quarters. Growth may accelerate to 8.2 percent this quarter, according to the median estimate of 23 analysts surveyed by Bloomberg News this month.
The data may have been distorted because of the Chinese New Years holiday (one full week) which fell in February this year. In 2012 it came in January.
And Reuters cautions not to over-react:
While disappointing to bulls, the pullback is by no means a harbinger of gloomy sentiment, rather it's a reminder that expansions are never a one-way track higher.
It's also possible that the PMI is signalling that commodity import growth may moderate, which wouldn't necessarily be a bad thing, given China's demand for resources has generally surprised on the upside in recent months.
The Shanghai composite seemingly was anticipating weaker economic news last week with a decline of almost 5%, but was up 0.5% today as this was written. Most other Asia/Pacific markets were trading higher Monday as well, with the Nikkei up more than 2% in Tokyo. The Japanese market has been on an absolute tear, up 35% over the past three months.
- HSBC Flash China Manufacturing PMI™ (Markit Press Release, 25 February 2013)
- China’s Slower Manufacturing Casts Shadow Over Recovery: Economy (Bloomberg News, 25 February 2013)
- COLUMN-China flash PMI retreat shows not to get too bullish, too quickly: Clyde Russell (Clyde Russell, Reuters, 25 February 2013)
- Asia/Pacific Indices (Yahoo Finance)