Caixin PMI signals expansion in manufacturing

Huang Yixuan
The index's headline reading rebounded in August, with firms registering the quickest increase in production in five months.
Huang Yixuan

Chinese manufacturing activity accelerated in August from a month earlier, with firms registering the fastest increase in production in five months, according to Caixin figures released on Monday.

The Caixin China General Manufacturing Purchasing Managers’ Index, which is weighted toward private companies, edged up to 50.4 last month from 49.9 in July, Caixin magazine and research firm Markit said.

A reading above 50 signals growth, while below 50 points to contraction.

China's official manufacturing PMI, released on Saturday, edged down slightly to 49.5 in August from 49.7 in the previous month.

The rebound in Caixin's headline PMI figure signals improvement in the overall health of the manufacturing sector, according to the report.

Supporting the higher headline reading was the quickest increase in production in five months. Though only slight overall, the expansion contrasted with broadly unchanged output in July and a reduction in June, contributing to the first rise in stocks of finished goods to-date in 2019.

The gauge for new export orders, however, remained in contractionary territory and fell to the lowest level this year in August, reflecting declining foreign demand amid an intensifying trade dispute between China and the US, according to Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group.

But data indicated that improved domestic demand helped offset a further reduction in export sales. The subindex for new orders stayed in expansionary territory but inched down, "suggesting flat demand for manufactured products," Zhong said.

Capacity pressures meanwhile persisted in August, as highlighted by a further increase in work backlogs. The rate of accumulation was the quickest seen for just over a year, according to the report, as improved order book trends and insufficient staff numbers were linked to the latest rise in outstanding workloads.

"The employment subindex jumped to a level only marginally lower than the 50-point mark that divides expansion from contraction, showing a relative improvement in labor market conditions," Zhong said.

Also of note, average input costs fell across China’s manufacturing sector in August amid widespread reports of reduced raw material prices. Though moderate, the rate of reduction was the quickest since January 2016.

Lower cost burdens and efforts to stimulate sales led firms to cut their output charges at a quicker pace in August, with the rate of discounting the steepest since December 2015.

Looking ahead, although firms generally anticipate output to increase over the next year, the degree of confidence weakened from July, largely due to concerns over the ongoing China-US trade dispute and signs of a slowing global economy, the report showed.

"China’s economy showed signs of a short-term recovery, but downward pressure remains a long-term problem. Amid unstable Sino-American relations, China needs to step up countercyclical policies," Zhong said.

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