Chinese manufacturing sector performance subdued at start of 2019 - Caixin China General Manufacturing PMI
Latest survey data signaled subdued overall operating conditions in the Chinese manufacturing sector at the start of 2019. Production and total new work were both slightly down at the start of the year, despite a renewed increase in export orders. Relatively muted demand conditions underpinned the first fall in purchasing activity for 20 months, while firms also registered lower inventories of both purchased and finished items. On a positive note, employment levels fell at the weakest rate for nine months, while confidence towards the business outlook was at its highest since May 2018. The headline seasonally adjusted Purchasing Managers Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, posted 48.3 at the start of 2019, down from 49.7 in December, to point to a continued softening in the health of China's manufacturing sector. The latest PMI reading was the lowest since February 2016.
After rising slightly at the end of last year, Chinese manufacturing production weakened in January. According to panellists, softer demand conditions led companies to revise their production schedules. That said, the rate at which output fell was only modest. January’s survey indicated a generally subdued trend in total new work placed with Chinese goods producers. Underlying data indicated that weakness largely stemmed from muted domestic demand, as new work from abroad rose slightly at the start of the 2019.
Workforce numbers at manufacturing firms in China fell only slightly in January. Furthermore, the rate of reduction was the s lowest seen for nine months. At the same time, companies reported a further modest increase in the amount of outstanding orders.
The softer fall in employment was accompanied by a slight improvement in business confidence. Notably, sentiment regarding the 12-month business outlook was at its most positive since May 2018. Some firms anticipate new products and planned company expansions to boost output over the next year.
Purchasing activity weakened in January, driven by a softer trend in overall new order intakes. That said, the pace of decline was modest. Manufacturers also adopted a relatively cautious approach to inventories, as firms reduced their holdings of both stocks of p urchases and finished items at the start of 2019.
After broadly stabilising at the end of 2018, average suppliers’ delivery times increased across China’s manufacturing sector in January.
Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said “The Caixin China General Manufacturing PMI fell further to 48.3 in January, the lowest since February 2016.The subindex for new orders dipped further into contractionary territory, pointing to a moderate contraction in demand across the manufacturing sector. Yet the gauge for new export orders rose notably above the 50 level, the dividing line that separates contraction from expansion, reaching its highest point since March 2018, showing that companies’ export orders have obviously rebounded since the truce in the China-US trade war. The output subindex dropped, highlighting the drag effect of softer demand on production. The employment subindex continued to rise moderately despite staying in negative territory, which could be due to the effect of government policies to stabilize the job market. The measure for stocks of finished goods fell into contractionary territory, while the subindex for stocks of purchased items dropped further, suggesting that manufacturers tended to reduce their inventories. The subindex for suppliers’ delivery times returned to negative territory, indicating that pressure on capital turnover, though less than in the months before December, still existed. Both gauges for input costs and output charges dropped only slightly. While companies have reduced their inventories, prices of domestic industrial products have since the start of the month recovered some of the losses seen in December. We expect that year-on-year growth in the producer price index is likely to slide closer to zero. On the whole, countercyclical economic policy hasn’t had a significant effect. While domestic manufacturing demand shrank, external demand turned positive and became a bright spot amid positive progress in Sino-US trade talks. As companies were more willing to reduce their inventories, their output declined, indicating notable downward pressure on China’s economy. China is likely to launch more fiscal and monetary measures and speed up their implementation. Yet the stance of stabilizing leverage and strict regulation hasn’t changed, which means the weakening trend of China’s economy will continue.”
Source : Strategic Research Institute