Saturday, July 21, 2012

China Manufacturing Contracts to 7-Month Low: "Lack of Demand"

The HSBC China Manufacturing Purchasing Managers' Index, compiled by Markit, decreased -0.2 to 48.2 in June, a 7-month low. A contraction was expected and ongoing slowdowns are projected. This is the 8th 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 11 of the past 12 months.

Another PMI, by the Chinese Federation of Logistics and Purchasing, dipped -0.2 to 50.2 in June, indicating near stagnation. This contradicts the HSBC China PMI. What to make of this? How about averaging them. The two contrasting PMI’s averaged together are 49.2, which indicates a slight contraction for China manufacturing. There has been some recent questioning of the CFLP PMI being overstated.

China Manufacturing PMI Manufacturing began contracting, an Index reading of less than 50, in July 2011. The chart peak was 55.3 in November 2010. The short, intermediate, and long-term trends are downwards. The PMI is a percentage - not a total.

Hongbin Qu, Chief Economist, China & CoHead of Asian Economic Research at HSBC, said: "It is all about growth and employment. As external demand has weakened and domestic demand hasn't shown a meaningful improvement in response to earlier easing measures, growth is likely to be on track for further slowdown, hence weighing on the jobs market. But as inflation eases sharply, Beijing has plenty of room and policy ammunition to avoid a hard landing. We expect more decisive easing efforts to come through in the coming months."

USA Manufacturing Contracts in June to 35-Month Low!


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