China: Manufacturing Data Disappoints

Econintersect:  The final HSBC PMI for China in September has come in at 50.2, up from 50.1 in August.  Because the reading is above 50 (the dividing line between expansion and contraction) the result indicates that China’s manufacturing is growing, but just barely.  The reading is both disappointing and a surprise since it is a fill point below last week’s “flash” PMI (preliminary estimate).  The final reading is usually with 0.2 or so of the preliminary number.

The following key points were emphasized in the report from Markit:

• Output growth eases to fractional pace

• New business from abroad increases for the first time in six months

• Purchasing activity rises for second successive month

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC had this to say about the report:

“The September HSBC China Manufacturing PMI edged up slightly from August. New orders remained flat from the previous month, while external demand improved. Manufacturers restocking process continued but remained relatively slow. Growth is bottoming out on Beijing’s mini-stimulus. We expect continuous policy efforts to sustain the recovery.”

Following is the complete press release text from HSBC:

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 50.2 in September, broadly unchanged from 50.1 in August, and signaled that operating conditions improved fractionally since the previous month. Though only slight, this was a positive development, with the PMI signalling a further improvement upon July’s 11-month low.

Output across the Chinese manufacturing sector expanded for the second successive month in September, though the rate of growth slowed to a fractional pace. Furthermore, growth of new work was unchanged from the previous month and only slight.  Nonetheless, new business from overseas increased for the first time in six months (albeit marginally), with panelists citing stronger demand from client bases in Europe and the US.

An increased amount of new work led to a further modest increase in purchasing activity at Chinese manufacturers. In contrast, stocks of inputs fell for the eighth month in a row, albeit at the weakest pace in the current sequence of reduction.

Stocks of finished goods declined for the third successive month, though only slightly. According to a number of surveyed firms, an increased amount of new business led to the depletion of inventories.

Greater volumes of incoming new work led to a modest accumulation of work-in-hand. Backlogs of work have now increased for two successive months. Despite expansions of both output and new work, employment levels continued to decline and at a similar pace to that seen in August.

Stronger demand for production materials led to a renewed deterioration of vendor performance. Though modest, it was the strongest lengthening of lead times since January.

Average production costs increased for the second consecutive month in China’s manufacturing sector.  The rate of input price inflation was marked, with nearly 14% of respondents noting increased cost burdens. Higher prices for raw materials such as steel and oil were said to have driven inflation. Firms chose to pass on their higher input prices to clients by raising their output charges for the second month in a row. However, the rate of increase was below-trend and only modest.

The survey reports on rising costs of input materials bears watching.  Econintersect has been tracking an 17-month run of producer price deflation in China.  Perhaps this indicates the deflationary period is ending.

The official government survey, which covers different companies than does HSBC, will be out tomorrow (02 October 2013).  That will be worth watching closely.

John Lounsbury

Sources:

• Slower rise in manufacturing output (HSBC Purchasing Managers’ Index™ Press Release, Markit Economics, 30 September 2013)

• China manufacturing ticks up more slowly than expected, raising concern on recovery’s strength (Associated Press, The Washington Post, 29 September 2013)

• China: Preliminary PMI at 6 Month High (GEI News, 23 September 2013)

• Is China Trapped in Deflation? (GEI News, 09 September 2013)