International | Aug 02 2010
By Rudi Filapek-Vandyck
If we can rely on the private monthly survey into Chinese manufacturers, then momentum has quite rapidly reversed from red hot market momentum towards mild contraction in July. HSBC and market researchers Markit Economics report their seasonally adjusted China Manufacturing PMI fell below 50, marking the first month-on-month deterioration for the sector operating conditions since March 2009.
At 49.4, down from 50.4 in June, HSBC/Markit state July marks “a distinct turnaround from the strong sector performance seen at the beginning of 2010, and continues the cooling trend observed since that peak”.
According to the survey, manufacturing production in China fell again in July, decreasing at a fractional rate that was slightly slower than in the preceding month. Those panellists that reported a decline in output often linked this to reduced intakes of new business, which fell for the second month in succession. Furthermore, the rate of decline in new work accelerated to the quickest pace since March 2009, with many panellists citing lacklustre client demand as having negatively impacted upon new order books. New export business also fell in July, contrasting with near-record rates of growth seen throughout Q1 2010.
According to the latest data, outstanding business rose at a negligible rate in July, with a number of respondents reporting that they had sufficient capacity to deal with both new and existing business.
However, staffing levels in the Chinese manufacturing sector rose again in July, extending the current period of growth to fourteen months. The rate of job creation was nevertheless only slight, and slower than in the preceding month, report HSBC/Markit.
Company expansion plans were cited by panellists as having supported employment growth in the latest survey period. Conversely, those firms that noted a drop in staff numbers widely commented that employees had left due to low salary payments.
Average input costs fell further in July, decreasing at a solid rate that was the fastest since May 2009. As a result, factory gate charges fell for the second month running in July. Moreover, the solid rate of price discounting also reflected increased competition for new business. The PMI measures for output charges and input prices have fallen almost seventeen and thirty points respectively since the start of the year, "highlighting the rapid nature of the slowdown in inflationary pressure", comment HSBC/Markit.
According to HSBC/Markit, the three key take away elements in the July survey were:
– Fastest fall in new business since March 2009.
– Marginal rise in Chinese manufacturing employment.
– Average input costs fell at the fastest rate in fourteen months.
However, the economists also add there is in their view no reason for panic as the survey results are still consistent with a slowing economy, in line with policies set in place by Chinese authorities.
Earlier on Sunday (yesterday), the Chinese Federation of Logistics and Purchasing released its own monthly PMI survey for Chinese manufacturers, equally showing the lowest outcome for 16 months, albeit still in positive territory. As such, the “official” PMI for July reads 51.2 from 52.1 in June.
It appears difficult to assess whether the official survey came out in line or below market expectations, with various media sources providing contradictory information on Monday. However, it would seem some investors had feared a more negative outcome for the official PMI in July.
Also, some economists are suggesting the July outcome might well mark the bottom for this year, which would indicate that future surveys will see higher PMI outcomes.
