Wednesday, June 6, 2012

China Manufacturing Contracts: "Modest Deterioration"

The HSBC China Flash Manufacturing Purchasing Managers' Index, compiled by Markit, decreased -0.6 to 48.7 in May, negating last month's gain. This is the 7th consecutive month below 50, which indicates contraction. The reading is above the 32-month low of 47.7 in November 2011.

An index reading above 50 indicates an overall increase in manufacturing. The China Manufacturing PMI has been just below 50 for 10 of the past 11 months. The flash estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate indication of the final PMI data to be reported at the beginning of the month.

China Manufacturing PMI Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peaks were 55.7 in March 2010 and 55.3 in November 2010. The short and long-term trends (3 and 12 months) continue downward. The intermediate-term trend (6 months) has begun increasing. The PMI is a percentage - not a total.

Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC, said: "Manufacturing activities softened again in May, reflecting the deteriorating export situation. This calls for more aggressive policy easing, as inflation continues to slow. Beijing policy makers have been and will step up easing efforts to stabilize growth, as indicated by a slew of measures to boost liquidity, public housing, and infrastructure investment and consumption. As long as the easing measures filter through, China will secure a soft landing in the coming quarters."


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