Econintersect: The first of two PMI (Purchasing Manager Index) readings for August has been reported. The HSBC (Hong Kong Shanghai Bank) Flash PMI 
came in at 47.8, down from a 49.3 reading for July. This was the lowest reading in nine months and the tenth consecutive month below the 50 level which marks the boundary between expansion and contraction.
The flash PMI survey covers many medium sized and small private held companies which are not included in the official PMI, due next week. The official PMI concentrates on large corporations and GSEs (government sponsored enterprises) and has been declining from healthy levels early in the year to just above the 50 level in July.
Since the flash index is slanted more toward export-oriented firms the low reading adds to the bad news for exports in the third quarter. GEI News reported two weeks ago that exports for July showed an unexpectedly weak 1% growth year-over-year after a fairly strong amount of growth in the second quarter. The first quarter showed almost no growth year-over-year for exports so the second quarter had been thought to represent the start of a turn around. That expectation appears to be in the process of getting smashed – The flash PMI for August may portend an even weaker export report for the month than the very poor July number when it is released the second week of September.
From Shanghai Daily:
Qu Hongbin, chief economist for China at HSBC, said falling orders drove the August Flash PMI to a nine-month low.
“It suggests Chinese producers are still struggling with strong global headwinds,” Qu said. “China must step up policy-easing to lift infrastructure investment in coming months if it hopes to achieve the stated policy goal of stabilizing growth and the job market.”
China’s gross domestic product expanded 7.6 percent from a year earlier in the second quarter, the slowest pace in three years, which drew closer to the government target of a minimum 7.5 percent growth for this year.
Zhang Zhiwei, a Nomura economist, said the Flash PMI suggested economic momentum likely remained weak in August. “It indicates that the batch of August economic data may face downside risks as well. Export weakness in July may have continued into August, and the effect of policy stimulus through infrastructure investment may not show up as strongly in the HSBC PMI as in the official PMI,” Zhang said.
Sources:
- China factories slow as index hits 9-month low (Shanghai Daily, Wang Yanlin, 24 August 2012)
- China PMI Improves but Still in Contraction (GEI News, 24 July 2012)
- China Exports: Economy Continues to Soften (GEI News, 10 August 2012)
