Econintersect: Both the official PMI (Purchasing Managers’ Index) from the government and the Markit HSBC PMI turned in strong reports for October 2013. The official PMI registered 51.4, up from 51.1 in September. This index covers large companies (many government owned) and is considered a better represntation of the domestic economy than the HSBC index which covers small and medium sized companies, mostly privately owned, which are considered a better reflection of China’s export economy. The HSBC number was 50.9, up strongly from 50.1 in September.
Manufacturing output was especially strong with the October sub-index jumping from 52.9 in September to 54.4 in the current government report.
The following graph shows both the official and HSBC history.
The following table lists all the sub-indices with recent two-month data.
Backlogs of new work and employment both remain in contraction (below 50), which is not favorable. However, inventories of finished goods dropped from 47.4 to 45.6 which does indicate possible upward pressure on increased manufacturing activity.
Commenting on the China Manufacturing PMITM survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:
“The final HSBC China Manufacturing PMI rose to a seven-month high in October, with the stronger momentum of manufacturing growth translating into the first expansion of employment since March. This in turn should support private consumption growth in the coming months. China is on track for a gradual growth recovery.”
Here is the full summary from Markit:
After adjusting for seasonal factors, including the recent Golden Week holiday, the HSBC Purchasing Managers’ IndexTM (PMITM) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted at 50.9 in October, unchanged from the earlier flash reading, and up from 50.2 in September. Though only slight, it was the strongest improvement of operating conditions in China’s manufacturing sector in seven months.
Output at manufacturing plants in China increased for the third month running in October, and at the quickest pace since April. The expansion of output was accommodated by stronger client demand both at home and abroad, with new orders and new export orders rising at faster rates in October. Furthermore, it was the strongest expansion of new business from abroad in nearly a year, with a number of panellists citing greater demand in the US in particular.
The level of outstanding business at Chinese manufacturers increased solidly in October, and was generally associated with new order growth. Moreover, it was the strongest accumulation of work-in-hand in 31 months.
October data signalled a renewed expansion of payroll numbers, as some firms planned to expand output. However, the rate of job creation was only slight. Increased production requirements led to higher levels of purchasing activity. Furthermore, the rate of increase accelerated since September to a solid pace, with 17% of surveyed firms noting more input buying. Concurrently, stocks of purchases rose for the first time since January, albeit marginally. Stronger demand for inputs led to a deterioration of vendor performance for the second successive month in October. That said, the rate at which delivery times lengthened was only slight.
Average production costs faced by Chinese manufacturers increased for the third month in a row during October. However, the rate of input price inflation eased slightly since the previous month. A number of survey respondents attributed inflation to higher raw material costs. Meanwhile, output charges were raised for the third successive month, though the rate of increase eased to a marginal pace.
Finally, stocks of finished goods increased for the first time in four months, albeit slightly.
Sources:
- Official China manufacturing PMI at 51.4 in October, HSBC PMI at 50.9 (Liyan Qi, Dow Jones, The Australian, 01 November 2013)
- HSBC China Manufacturing PMI™ (Markit, 01 November 2013)
- China’s Official PMI Beats Expectations (Sam Ro, Business Insider, 31 October 2013)