International | Aug 03 2009
By Rudi Filapek-Vandyck
Economists at CLSA report the headline CLSA China Manufacturing PMI remained above the neutral 50.0 level for the fourth month running in July, up from 51.8 to a twelve month high of 52.8. The improvement in the PMI, which now has risen over ten index points since the start of the year, points to a further acceleration in the pace of recovery of the Chinese manufacturing sector, comment the economists.
Over the weekend, the China Federation of Logistics and Purchasing reported its own Purchasing Managers’ Index (PMI) of China’s manufacturing sector stood at 53.3% in July marking a gain of 0.1 percentage point from June. Its June index had also gained 0.1 percentage point from the prior month.
Its purchasing price index climbed 2.1 percentage points to 59.9% in July, marking the eighth monthly increase since December. Its output index was 57.3%, up 0.2 percentage points from a month ago. The China Federation of Logistics and Purchasing’s new order index was 55.5% in July, same as that in the previous month.
July data collected by CLSA have indicated Chinese manufacturing production rose for the fourth month in succession. Moreover, the CLSA survey indicates the expansion in July occurred at the most marked rate since May 2008. Reports CLSA: those firms that reported output growth generally attributed this to continued gains in new business plus further signs of economic recovery.
Volumes of incoming new work received rose at the fastest rate for fourteen months in July, this marks a noticeable improvement compared to the steep declines seen in late 2008 and at the beginning of 2009, comments CLSA. Also, point out the economists, July marks the fourth month running in which firms’ order book positions improved.
But it was all about domestic demand as external demand remained lacklustre in July. A number of panellists, notes CLSA, reported the global economic slump was still having a negative impact upon export sales. Latest data signalled that capacity pressures continued to build, with July marking the fourth month running in which backlogs of work have risen. Outstanding business growth was the sharpest in just over a year, led principally by continued gains in new work.
The survey has also revealed that, in response to rising new and outstanding business volumes, Chinese manufacturers recruited additional workers for the second consecutive month in July. Although only modest, job creation was the strongest for fourteen months, reports CLSA.
Also, improved demand conditions boosted companies’ pricing power in July, highlighted by the first rise in prices charged in just under a year. Anecdotal evidence suggests that firms had raised their output charges in response to higher input costs. According to the latest data, input price inflation was registered for the first time since September last year. CLSA reports strong growth of input prices was in contrast to the considerable declines registered around the turn of the year.
Survey responses suggest that more expensive raw materials had placed upward pressure on firms’ cost burdens. Solid demand for inputs – reflecting increased production and new order volumes – has had the effect that average vendor performance improved at a negligible pace in July. CLSA economists talk about “the weakest [pace] in the current period of faster lead times”.