Significant update of post: 01 February 2015, 1:59 am EST
Updated: 02 February 2015, 1:49 am EST
Econintersect (update): The final HSBC Manufacturing PMI (Purchacing Managers' Index) recorded it's second month in a row below 50, with a reading of 49.7, up slightly from December 2014 value of 49.6. More for this update at end of article.
Econintersect: The official PMI (Purchasing Managers' Index) reported a reading of 49.8 in January, just below the 50 mark which is the demarcation between expansion and contraction. This was the first monthly contraction in 2 1/2 years and was not unexpected: 10 of 11 economists in a Reuters' poll expected a reading above 50 with the consensus being 50.2. The December number was 50.1. Another PMI survey taken by HSBC and reported by Markit had a preliminary ("flash") value of 49.6 for January, reported last week. The final reading for that survey is due 02 February 2015.
Following a strong recovery from the Great Recession where the manufacturing PMI rose to 56, the index has been in a declining trend for the five years since. Sources quoted by Reuters indicated they thought monetary loosening by China was becoming increasingly likely with the latest data.
Update: 02 February 2015, 1:49 am EST
The key points highlighted by the HSBC/Markit report:
The historical data for the HSBC PMI is shown below, with the same general downtrend as for the official PMI seen in the graph from Trading Economics, shown above:
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the latest data:
“The HSBC China Manufacturing PMI rose to 49.7 in the final reading for January, from 49.6 in December, and revised down from the flash reading of 49.8. Both new orders and new export orders saw downward revisions, but still signalled marginal expansion. We think demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth.”
Why Are There Two PMI Reports for China?
The difference between the two PMI has been discussed previously by GEI News. From an article 02 May 2012:
The HSBC PMI focuses more on smaller and private companies, while the official PMI surveys many large and state-owned companies. The Dow Jones Newswires article indicates that the difference between the two gauges may be because smaller companies, which have a harder time accessing credit, are recovering slower than large ones, economists have said.
In addition to differences in credit access, the two cohorts of companies have other distinctions, among them sensitivity to exports. From GEI News (September 2012):
The HSBC Flash PMI is an indicator of China's industrial activity slanted toward private and export-oriented firms and is based on information obtained from about 420 companies, mostly smaller and mid-sized. There is also an official PMI reported each month by the Chinese government which covers mostly large corporations and SOEs (state owned enterprises).
To summarize, the major differences between the two surveys are (1) the small and medium sized companies in the HSBC survey are privately owned and have a greater sensitivity to strength of exports while the official government survey is dominated by large, mostly government owned enterprises and is more sensitive to China's domestic economy; and (2) the two surveys can diverge as well when credit is more accessible to one group of companies than the other.
- China factory sector jolts by shrinking in January (Koh Gui Qing, Reuters, 31 January 2015)
- HSBC Flash China Manufacturing PMI (Press Release, Markit, 23 January 2015)
- China Manufacturing PMI (Trading Economics, 01 February 2015)
- Update: HSBC China Manufacturing PMI: Operating conditions deteriorate fractionally in January (Press Release, Markit, 02 February 2015)
China: HSBC PMI Still Indicating Contraction (GEI News, 02 May 2012)
- China: Flash PMI Up Slightly, Preliminary Reading (GEI News, 21 September 2012)