Asia Economy
China's manufacturing PMI grew strongly in October; Modest growth in manufacturing in Japan and India
By Finfacts Team
Nov 1, 2011 - 5:19 AM

Printer-friendly page from Finfacts Ireland Business News - Click for the News Main Page - A service of the Finfacts Ireland Business and Finance Portal

Source: Markit

China's manufacturing output grew strongly in October. Japan's manufacturing PMI (Purchasing Managers' Index) signalled marginal improvement in operating conditions and growth of Indian manufacturing output strengthened, but remained modest.

China: October data signalled a stronger expansion of manufacturing output in China, as overall new business rose for the first time in three months. Renewed growth of new export orders was also signalled, while companies raised their purchasing at the fastest rate since March. Meanwhile, average input costs rose at the weakest pace in four months. In contrast, output charge inflation accelerated.

After accounting for seasonal trends, the HSBC Purchasing Managers’ Index (PMI) - - a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – posted 51.0 in October, up from 49.9 in September, signalling an improvement in operating conditions for the first time since June. Nonetheless, the index reading was below the long-run trend (52.1), and at a level indicative of a modest rate of growth.

Manufacturing production in China increased for the third successive month during October, with the pace of growth reaching a five-month high. Behind the latest increase in manufacturing output was a renewed expansion of new business. The rate of new order growth was solid, and the fastest since May. Respondents indicated that improved demand conditions had contributed to the rise in new orders.

New export orders also rose in October, ending a five month period of contraction. Additionally, the pace of expansion was the strongest in nine months. Where an increase in foreign order levels was recorded, this was commonly linked to better demand from external markets.

Reflecting higher output requirements, manufacturing firms raised their input buying for a third successive month during October. Despite this, stocks of purchases continued to fall in the latest survey period, with some firms reporting a preference towards stock depletion. Meanwhile, supplier delivery performance deteriorated at a negligible rate that was the slowest in the 27-month period of lengthening lead times.

October’s survey findings showed no change in manufacturing employment from one month ago. Companies that reported shedding jobs linked this to employee resignations, retirements and, in some cases, company downsizing. Manufacturers that added to their workforce numbers over the month reported business expansion plans and rising new orders.

Average input costs rose for a fifteenth consecutive month during October. Panellists cited higher raw material prices as the key driver of inflation. Rising fuel costs were also mentioned. However, the rate of purchase price inflation eased sharply to a four-month low, and was much slower than the long-run series trend. In contrast, the pace of output charge inflation was the sharpest since April, and was faster than that seen for input prices. Manufacturers reported passing on increased costs to clients through higher average tariffs.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, chief economist, China & Co-Head of Asian Economic Research at HSBC said: “The final PMI confirms the notable improvement in China’s manufacturing activities driven by rising new business from both domestic and external markets. Despite the slight uptick in output prices growth, inflation is on track for easing. This provides leeway for Beijing to fine-tune policy to strike a better balance between growth and inflation priorities. We expect stable monetary policy with targeted easing in the coming months.”

The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 manufacturing companies.

Japan: PMI survey data showed renewed growth of Japan’s manufacturing sector in October, supported by a solid rise in manufacturing output. This occurred despite continued falls in overall new business and new export orders. On the price front, the rate of input price inflation eased to an 11-month low, while output charges fell for the third month in succession.

The seasonally adjusted Markit/JMMA Purchasing Managers’ Index (PMI) posted 50.6 in October, up from 49.3 in September, signalling a marginal improvement in manufacturing sector operating conditions. Manufacturing production rose during October, following a decline one month earlier. Moreover, the rate of expansion was the steepest since July. By market production growth was centred on the investment goods producing sector.

The level of incoming new business received by Japanese manufacturing firms fell further during October, although the rate of reduction was only marginal. Where firms reported a drop in new order levels, this was commonly linked to subdued demand conditions. New export orders also decreased in the latest survey period, extending the current period of contraction to eight months. Despite easing since September, the pace of reduction was solid. Those respondents that registered a drop in foreign order levels attributed this to weak demand from China and adverse exchange rate factors.

Reflecting a combination of rising output and falling new business, backlogs of work fell and stocks of finished goods rose in October. However, the rate of inventory accumulation was only slight.

Commenting on the Japanese Manufacturing PMI survey data, Alex Hamilton, economist at Markit and author of the report said: “Japanese manufacturers registered renewed production growth in October, despite further declines in new orders from both domestic and external clients. Weak demand from China and ongoing yen strength were again cited as key factors contributing to falling export sales.

“Despite easing to an 11-month low, the pace of input cost inflation was solid, and contrasted with a third successive month of output price discounting. These findings again signal that strong competitive pressures are restricting the ability of firms to pass on higher costs to clients.”

The Markit/JMMA Japan Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies.

India: The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) – a headline index designed to measure the overall health of the manufacturing sector – posted 52.0 in October, up from September’s 50.4. The latest reading pointed to an improvement in business conditions in the Indian manufacturing sector. The rate of growth was modest, but stronger than in the previous survey period.

Indian manufacturers reported a solid rise in new business received during October. The rate of expansion accelerated since September to the strongest in three months. Panellists commented that this reflected a general improvement in client demand. However, the rate of new order growth remained below the historical average, which was, in part, due to a further decrease in new business received from export markets. Demand in key export countries continued to be affected by softening global economic conditions.

Output rose at a modest, but firmer, rate during October, in line with faster new order expansion. However, anecdotal evidence suggested that power outages had limited the extent of the rise in production. This was highlighted by an accumulation in levels of outstanding business and also a depletion of finished goods stocks, which were utilised to help fulfil order requirements. That said, both the accumulation of backlogs and the depletion of post-production inventories were marginal.

October data signalled a third successive reduction of employment in the Indian manufacturing sector. Respondents commented that increased salary demands from workers had made it difficult to fill vacant positions.

Purchasing activity rose solidly in October, and at a faster rate than in September. This was in line with stronger growth of new orders and output. Subsequently, a lengthening of lead times was reported. Panellists cited labour shortages at suppliers as the main contributor to longer lead times. Stocks of purchases increased in October.

Input prices faced by manufacturers in India rose substantially during October. The rate of cost inflation was broadly unchanged since September and strong in the context of historical data. Higher raw material and transport costs were the main drivers of the increase in costs.

Commenting on the India Manufacturing PMI survey, Leif Eskesen, chief economist for India & ASEAN at HSBC said: "The Indian manufacturing sector rebounded in October, with rising orders pulling up output. Tight capacity is evident from rising backlogs of work, lengthening supplier delivery times and reported difficulties filling vacancies. Not surprisingly, input and output prices continued to rise at a rapid pace."

The HSBC India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies.

Check out the new subscription service, Finfacts Premium , at a low annual charge of €25 - - in the Irish barter benchmark, the equivalent of the price of 6 pints of Guinness in a year.

It's a simple fact that in the prevailing economic climate, the provision of high quality content cannot be sustained through advertising alone.

Business executives who put a premium on time and value high quality information, should use our service.


© Copyright 2011 by Finfacts.com