CHINA Manuf. PMI, Orders Contract Again

First, the HSBC PMI:

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 48.2 in June, down from 49.2 in May,
signalling a modest deterioration of business conditions. Operating conditions have now worsened for two successive months.


The rate of contraction was modest, and generally attributed to weaker client demand, as total new orders declined for the second month in a row. New business from abroad also fell in June, with the rate of contraction the fastest since last September, and the joint-sharpest in over four years. Anecdotal evidence suggested that reduced client demand, particularly from Europe and the US, led to fewer new export orders.

Staff numbers also decreased in June. The pace of job shedding was the fastest since last August, and joint fastest since the depths of the financial crisis in early 2009. Anecdotal evidence implied that job cuts were due to a combination of employee resignations and weaker trends in output and new orders.

Purchasing activity decreased for the second consecutive month during June, and was generally associated with lower production requirements. That said, the rate of reduction was slight. Concurrently, stocks of purchases fell for the fifth month in a row, and at the quickest pace in the current sequence.

Average input costs faced by goods producers decreased for the fourth successive month and at a solid pace. According to anecdotal evidence, lower raw material costs drove the overall reduction.

Manufacturers passed on their savings to clients by cutting their average tariffs sharply over the month. A number of panellists also suggested that charges were discounted in an effort to boost client demand.

The Official PMI is not in contraction territory just yet:

The purchasing managers’ index (PMI) for the manufacturing sector fell to 50.1percent in June from 50.8 percent in May, according to data issued by the China Federation of Logistics and Purchasing (CFLP) on Monday.


Major PMI compounds all declined in June, indicating downward pressure on the economy, said Zhang Liqun, an analyst with the Development Research Center of the State Council.

But Zhang also added that economic growth is still in a process of stabilizing. Inventories have reached a historically low level, suggesting limited room for further decreases, he said.

In June, the sub-index for production moved down from 53.3 percent in May to reach 52.0percent, while the sub-index for new orders lost 1.4 percentage points to hit 50.4 percent,according to a joint statement from CFLP and the National Bureau of Statistics.

The sub-index for raw material inventories was down 0.2 percentage points from the previous month to 47.4 percent in June, marking the fifth consecutive month of shrinking stocks.

The sub-index for the purchase prices of raw materials lost 0.5 percentage points to reach 44.6 percent in June, staying below the 50-percent demarcation line for a third consecutive month.

The data also showed that the employment sub-index for June pared 0.1 percentage points to48.7 percent, indicating job cuts, while the sub-index for supplier delivery times moved down 0.5 percentage points to 50.3 percent.


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