- PMI falls to seven-month low of 52.1 in October.
- Growth of output and new orders continues to slow.
- Substantial easing of input price inflation.
|Source: NTC Economics|
October’s data highlighted a further improvement in Chinese manufacturing operating conditions – the eleventh in successive months.
However, the CLSA China Purchasing Managers’ Index (PMI ) – a composite indicator designed to provide a single-figure snap-shot of the health of the manufacturing sector – , produced by NTC Economics, fell for the third month running, from 52.4 in September to 52.1, its lowest level in seven months.
Commenting on the survey, Dr. Jim Walker, Chief Economist at brokerage CLSA said:
"The focus has shifted in Chinese manufacturing conditions from rapid cost increases to the growth outlook, particularly in export markets. Export orders have turned down sharply in the last two months, although October was a tick better than September, and have begun to drag the overall orders index down. We expect that downturn to intensify as the US economy slows sharply in 2007.
Overall though, manufacturing activity continues to expand in China on the back of still healthy liquidity growth. Capital inflow is partly offsetting the government’s efforts to cool monetary conditions. We see more tightening efforts ahead in order to control bank lending and overall monetary aggregates. This is likely to coincide with an external demand slowdown. The months ahead, in our view, will be distinctly tougher for Chinese manufacturing than 2006 has been. We are watching orders backlogs closely and forward looking indicators such as new orders for signs of activity cooling in line with government efforts."
The decline in the PMI reflected slower growth of output, new orders and employment during the latest survey period.
Manufacturing production rose for an eleventh consecutive month in October. However, the latest increase was the weakest since March. Easing output growth reflected a similar moderation in the pace of expansion of new orders, which hit a seven-month low. Domestic demand remained the principal driver of growth, as foreign sales were again subdued (new export orders rose only modestly in October).
Backlogs of work fell marginally for the first time in eight months during October, as pressure on firms’ operating capacity abated due to the slowdown in new order growth. Growth of employment meanwhile was recorded for a seventh successive month.
A decline in stocks of finished goods was recorded for the third consecutive month in October. Although still only modest, the rate of contraction picked up to the sharpest for eight months.
Firms continued to step-up purchasing activity, with the rate of growth the strongest for three months. As a result, stocks of purchases rose for a seventh successive month and at the sharpest rate since the start of the survey in April 2004. Suppliers’ delivery times, meanwhile, continued to lengthen.
Latest data signalled a marked easing in the rate of input price inflation in the Chinese manufacturing sector, with October’s rise in costs the weakest for seven months. Panellists reported that prices for commodities such as oil and copper had retreated from elevated levels.
Lower input cost inflation was mirrored by a similar slowdown in the rate of increase of output prices. The latest rise in factory gate charges was only marginal and the least marked in the current period of inflation.