China's manufacturing showed more weakness in February but because the week-long Lunar Year holidays fell in the first week of the month, it wasn't a typical one. Services rose according to a new official PMI (purchasing managers' index) measure.
The government's official manufacturing purchasing managers index, published on Saturday, fell to 50.2 in February from 50.5 in January - - 50 is the no change point. After adjusting for seasonal factors, such as the recent Chinese New Year festival, the HSBC PMI posted at 48.5 in February, up fractionally from the earlier flash reading of 48.3, and down from 49.5 in January. This signalled a moderate deterioration in the health of the Chinese manufacturing sector.
February data signalled the first contractions of both output and new orders at Chinese manufacturers since July 2013. The rates of decline were moderate in both cases, and were linked by panellists to weaker-than-expected client demand. New business from abroad also declined over the month, and at a modest pace that was little-changed from January.
Lower output requirements and fewer new orders led to a fourth successive monthly fall in staffing levels at Chinese goods producers in February. Furthermore, the rate of job shedding was the quickest since March 2009.
Despite reduced payroll numbers, outstanding business declined at Chinese manufacturing firms in February. Though only slight, it was the first fall in the level of work-in-hand for seven months. According to survey respondents, reduced volumes of new business enabled firms to lower their amount of unfinished work.
Fewer new orders also led companies to reduce their purchasing activity in February. This was the first time that input buying had decreased since July 2013. Inventories of pre-production goods also fell over the month as companies readjusted stock levels in line with reduced production requirements.
Meanwhile, suppliers’ delivery times improved for the third month in a row. However, the rate of improvement eased to a fractional pace.
On the price front, average input costs fell for the second month running in February. Moreover, the rate of input price deflation was the strongest since June 2013. According to anecdotal evidence, relatively muted demand for inputs enabled firms to negotiate discounts on production materials.
Finally, manufacturers cut their factory gate prices for the third month in a row during February, and at the quickest rate in eight months.
Hongbin Qu, chief economist, China & co-head of Asian Economic Research at HSBC said: "The final reading of the HSBC China Manufacturing PMI confirmed the weakness of manufacturing growth. Signs become clear that the risks to GDP growth are tilting to the downside. This calls for policy fine-tuning measures to stabilise market expectations and steady the pace of growth in the coming quarters."
The Wall Street Journal reports that an official nonmanufacturing PMI, a gauge of service sector activity in China, rose to 55 in January from 53.4 in February. The strong figure suggests that China is making progress toward rebalancing of the economy away from its traditional reliance on exports and big capital projects—a move that experts say the country needs if it is to sustain reliable growth.
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