Chinese production stagnates in October - Caixin China General Manufacturing PMI
Operating conditions in China's manufacturing sector were little-changed from the previous month in October. Production was broadly unchanged, as total new business rose only slightly. Subdued sales were partly linked to weaker foreign demand, with export sales declining for the seventh month in a row. Relatively soft market conditions contributed to a further drop in workforce numbers, albeit modest, while buying activity rose only slightly. Furthermore, confidence regarding the business outlook for output dipped to an 11-month low. The headline seasonally adjusted Purchasing Managers Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, rose only slightly from 50.0 in September to 50.1 in October. This signaled that operating conditions were broadly unchanged at the start of the fourth quarter, after stagnating in the previous month. Prior to September, the health of the sector had improved for 15 consecutive months.
After rising in the preceding 27 months, manufacturing production in China was little-changed in October. According to panelists, output schedules were largely unchanged due to relatively subdued market demand.
After stagnating in September, total new orders expanded slightly in October. According to panelists, sluggish market conditions had dampened client demand, with some firms also citing reduced foreign demand. The amount of new export business fell for the seventh month running in October, though the rate of decline softened from September.
Employment fell again in October, thereby extending the current sequence of job shedding to five years. That said, the rate of reduction was the slowest seen since May. Lower workforce numbers were often linked to company down-sizing plans and staff retirements. However, a combination of payroll cuts and insufficient production led to a further modest rise in backlogs of work.
October survey data pointed to a renewed increase in buying activity among Chinese manufacturers. Reflective of the trend for new orders, however, the rate of expansion was marginal. Consequently, stocks of purchased items rose only slightly. Stocks of finished items meanwhile declined for the sixth month in a row, albeit marginally.
The time taken for purchased inputs to be delivered to manufacturers continued to lengthen in October. The rate at which vendor performance deteriorated was slightly quicker than seen in September.
Prices data signaled a further squeeze on operating margins as input costs continued to rise at a faster rate than output charges. Notably, the rate of cost inflation accelerated to the second-sharpest in nine months.
Although firms were generally optimistic that output would increase over the next year, sentiment dipped to an 11-month low amid concerns over current subdued market conditions and the impact of the ongoing China-US trade dispute.
Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said “The Caixin China General Manufacturing PMI edged up to 50.1 in October from the month before. The subindexes for new orders and employment both edged higher, with the former remaining in expansionary territory and the latter in contractionary territory. The subindex for new export orders also recovered despite staying in negative territory, just off a more than two-year low in September. However, the output subindex dropped for the second straight month despite remaining in positive territory, which was in line with the recent significant drop in value-added industrial output despite the rise in manufacturing investment. This may indicate that investment was largely driven by demand related to environmental protection or technological transformation which reflects manufacturers’ production outlook over the next 12 months, stayed in positive territory but dipped further, suggesting ongoing low business confidence.The subindexes for output charges and input costs both stayed in positive territory, with the former falling and the latter climbing, indicating that upward pressure on the prices of industrial products remained. The sub indexes for stocks of finished items and those of purchased items both rose marginally, with the former in negative territory and the latter in positive territory, pointing to a stable demand for manufactured goods. The subindex for suppliers’ delivery times fell in October following a rise in the previous month and stayed in negative territory, implying ongoing pressure on capital turnover among goods producers. Overall, expansion across the manufacturing sector was still weak. Production and business confidence continued to cool despite stable demand. The pressure on production costs didn’t ease. China’s economy has not seen obvious improvement.”
Source : Strategic Research Institute