Manufacturing PMI drifts lower in August

Chinese manufacturing activity grew at a slower pace in August as heavy rains disrupted production, while the services sector rebounded as the economy continues to recover from the coronavirus crisis, official data showed.

The Purchasing Manager’s Index for China’s manufacturing sector fell slightly to 51.0 in August from 51.1 in July, while the index for services firmed up to 54.3 from 53.1, according to the National Bureau of Statistics (NBS).

Both indexes remained above the 50-point mark that separates growth from contraction on a monthly basis for a sixth consecutive month.

“Dragged by small companies still facing operating difficulties and disrupted production in southwestern China, such as Chongqing and Sichuan Province where floods resulted in prolonged procurement for raw materials, reduced orders and a pullback in factory production, the PMI for the manufacturing sector is down slightly,” said Zhao Qinghe, a senior analyst at the NBS.

A sub-index for small firms stood at 47.7 in August, down from July’s 48.6, with over half of those surveyed reporting a lack of market demand and more than 40 percent reporting financial strain.

“But overall, the recovery remains even and the economy is steadily returning to pre-COVID levels,” Zhao added.

Fifteen industries out of 21 surveyed stayed in expansion in August.

Of note, high-tech manufacturers led the recovery with indices for high-tech and equipment manufacturing reaching 52.8 and 52.7, 1.5 percentage points and 0.9 percentage points higher than last month.

The balance between production and demand continued improving in August. A sub-index for new orders increased to 52.0, the forth month of gains in a row. A sub-index for production came at 53.5 in August. The gap of 1.5 percentage points is the narrowest since March.

Economic indicators ranging from trade to producer prices also suggest a further pick-up in the industrial sector.

Export in the manufacturing sector improved in August with the sub-index for new export orders increased to 49.1 from July’s 48.4. A sub-index for export of non-ferrous metals and metal products stood above the 50 mark.

Both input and producer prices were driven up by improved market demand. The input price index and producer price index firmed to 58.3 and 53.2, respectively, up 0.2 and 1.0 percentage points. Price indexes for some upstream industries such as non-ferrous metals saw more rapid rises.

Profits of China’s industrial firms last month grew at the fastest pace since June 2018, data showed on Thursday.

“Manufacturing rebounded most quickly. It wasn’t as sensitive to social distancing so activity rebounding more quickly there, and as such it's now decelerating after the initial strong rebound,” said Andrew Tilton, chief Asia Pacific economist at Goldman Sachs.

“It’s not too surprising that the manufacturing PMI has started to level off since growth in industry has already returned to its pre-virus level,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note.

The official non-manufacturing PMI, which includes services and construction sectors, rose to 55.2 from 54.2 in July, the NBS survey showed.

“It’s encouraging that the recovery is broadening out, with service sector activity now playing catch-up with industry,” added Evans-Pritchard.