China's manufacturing activity cools in August to a 14-month low

China’s manufacturing activity cooled in August to a 14-month low as new orders have risen at the slowest rate since May 2017, said a private report on Monday.

The Caixin China General Manufacturing Purchasing Managers’ Index dipped 0.2 points to 50.6 last month from July, according to the survey conducted by financial information service provider Markit for Caixin Media.

A reading above 50 signals growth, while one below 50 is a contraction.

The Caixin PMI reading differed from the slight rise of 0.2 points to 51.3 in August from a month earlier for the official PMI released by the National Bureau of Statistics on Friday.

The decline of the Caixin Manufacturing PMI in August marks the third straight monthly drop and its lowest level since June 2017, said Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

The latest Caixin PMI data indicated that demand softened, with total new business rising at the slowest pace for 15 months. Weaker foreign demand contributed to the softer increase in overall new work, with export sales declining for the fifth month in a row. 

Reports of company restructuring and cost-cutting initiatives underpinned a further reduction in headcount at Chinese manufacturers in August. 

The rate of job losses continued to pick up from July, and in turn caused work backlog to rise for the 30th month in a row, according to the report.

Inflationary pressure also picked up as firms noted steeper increases in both input costs and output charges. 

Input costs rose faster in August, with the rate of inflation being the second highest in seven months. According to the survey’s respondents, higher raw material costs pushed up purchasing prices. As a result, average charges for manufactured goods rose further, with the inflation rate also quickening since July.

Manufacturers continued to buy more, but modestly, in August. However, inventories rose only slightly amid a more cautious approach. Notably, stocks of finished items fell for the fourth month in a row. 

“I don’t think that stable supply can be sustained amid weak demand. In addition, the worsening employment situation is likely to have an impact on consumption growth. China’s economy is now facing an obvious downward pressure,” Zhong said.

The report showed that optimism over future production remained subdued in August, with confidence little-changed from June’s recent low. Concerns over the ongoing China-US trade war and softer demand clouded overall sentiment.