Econintersect: More bad news for China's manufacturing sector as the final Markit/HSBC PMI (Purchasing mangers' Index) reported a reading of 48.5, little changed from the preliminary ("flash") number reported ten days ago. This follows a disappointing reading from the official government survey yesterday. The reading for that survey, which covers large and mostly government owned companies, was just above the 50 line marking the boundary between expansion and contraction. The HSBC result, for small and mid-sized privately owned companies, was not so equivocal with a reading clearly indicating contraction.
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC, commented on the new data:
"The final reading of the HSBC China Manufacturing PMI confirmed the weakness of manufacturing growth. Signs become clear that the risks to GDP growth are tilting to the downside. This calls for policy fine-tuning measures to stabilise market expectations and steady the pace of growth in the coming quarters."
A significant factor in February was the occurrence of the Chinese New Year holiday for which HSBC said adjustments were made. Whether the seasonality adjustments for February might have underestimated the effect of the holiday celebration may be inferred when the March survey results are announced.
Here is the summary from the Markit press release:
Chinese manufacturers signalled reductions of both output and new business in February, leading to a moderate deterioration of overall operating conditions. As a result, firms cut their staffing levels again in February and at the quickest pace in nearly five years. Meanwhile, input costs and output charges both declined at their fastest rates in eight months.
After adjusting for seasonal factors, such as the recent Chinese New Year festival, the HSBC Purchasing Managers' IndexTM (PMITM) posted at 48.5 in February, up fractionally from the earlier flash reading of 48.3, and down from 49.5 in January. This signalled a moderate deterioration in the health of the Chinese manufacturing sector.
February data signalled the first contractions of both output and new orders at Chinese manufacturers since July 2013. The rates of decline were moderate in both cases, and were linked by panellists to weaker-thanexpected client demand. New business from abroad also declined over the month, and at a modest pace that was little-changed from January.
Lower output requirements and fewer new orders led to a fourth successive monthly fall in staffing levels at Chinese goods producers in February. Furthermore, the rate of job shedding was the quickest since March 2009.
Despite reduced payroll numbers, outstanding business declined at Chinese manufacturing firms in February. Though only slight, it was the first fall in the level of work-in-hand for seven months. According to survey respondents, reduced volumes of new business enabled firms to lower their amount of unfinished work.
Fewer new orders also led companies to reduce their purchasing activity in February. This was the first time that input buying had decreased since July 2013. Inventories of pre-production goods also fell over the month as companies readjusted stock levels in line with
reduced production requirements.
Meanwhile, suppliers' delivery times improved for the third month in a row. However, the rate of improvement eased to a fractional pace.
On the price front, average input costs fell for the second month running in February. Moreover, the rate of input price deflation was the strongest since June 2013. According to anecdotal evidence, relatively muted demand for inputs enabled firms to negotiate discounts
on production materials.
Finally, manufacturers cut their factory gate prices for the third month in a row during February, and at the quickest rate in eight months.
- PMI signals modest deterioration of business conditions in February (HSBC Purchasing Managers’ Index™ Press Release, Markit, 03 March 2014)
- China HSBC manufacturing PMI hits seven-month low in February (Adam Rose, Reuters)
- China: Official PMI Slows to Near Neutral (GEI News, 02 March 2014)
- China: Further Slowdown (GEI News, 20 February 2014)