August manufacturing PMI beats forecasts

China’s manufacturing activity grew faster than expected in August on improved supply and domestic demand.

The official Purchasing Managers’ Index, which measures vitality in the manufacturing sector, rebounded to 51.7 in August from July’s 51.4, the National Bureau of Statistics said today.

That exceeded market expectations of 51.3 and was the second-highest reading this year. The PMI has now remained in expansionary territory for a 13th consecutive month. A reading above 50 indicates expansion, while a reading below that reflects contraction.

Zhao Qinghe, the bureau’s senior statistician, said the manufacturing sector was stable, trending up as both supply and demand improve.

The sub-index for production rose to 54.1 from July’s 53.5 and new orders rose to 53.1 from 52.8. Improvement in domestic demand lifted the sub-index for imports to 51.4 — the highest this year.

High-tech and equipment manufacturing led the expansion in August, with their sub-indexes higher than the overall PMI.

But external demand weakened, with the sub-index for new export orders falling for the second consecutive month to 50.4 from 50.9 in July.

Zhang Liqun, an analyst with the China Logistics Information Center, said the August reading confirmed a foundation for stable economic growth.

He said stronger production indicated a recovery in industrial growth, and the outlook indicator improved for the fourth consecutive month, revealing stronger confidence among companies.

The Australia and New Zealand Banking Group said in a research note that strong production and a rebound in new orders lifted the August PMI as the effects from unfavourable weather in previous months faded.

The bank said third quarter GDP growth may exceed its previous forecast of 6.5 percent, but it maintained its full-year forecast at 6.7 percent.

Wednesday’s figures also showed the non-manufacturing PMI moderated to 53.4, the lowest since May last year.

Zhao said extreme weather in some areas had hit construction activities.

A contraction of activity in the wholesale, capital market services, real estate and residential services sectors overshadowed faster expansion in the air transport, postal services, broadcasting and Internet sectors.

The data came after a slew of economic indicators showed slower growth across industrial production, fixed-asset investment, consumption, and exports in July.

An official commentary on the website of the People’s Daily this week said the slowdown did not change a trend of stable growth in the domestic economy.

Employment and consumer prices are stable and the government’s supply-side reforms are helping eliminate outdated capacity and boost new industries, the commentary said.

Official statistics put GDP growth at 6.9 percent year on year in the first two quarters, up from 6.8 percent in the fourth quarter of 2016 and beating market expectations.