Friday and yesterday have seen some sharply contrasting economic figures and reports.
China’s key manufacturing sector seems to be rebounding, India’s growth is strengthening, Australian manufacturing is recovering, Japanese production (and the economy) seems to be sliding and the US economy is moribund.
And the survey for the US found manufacturing there at a five month high, but analysts said that won’t stop the Fed’s big easing this week.
China is our largest export market, India either third or fourth, depending on the monthly figures.
For yet another month, two sentiment surveys of Chinese manufacturing have produced more evidence that economy is not imploding/collapsing or going sideways.
It’s growing strongly after a slowdown mid year and comes despite a noticeable slowing in industrial output since the start of the year.
The official China Federation of Logistics and Purchasing’s PMI rose to 54.7 in October, from September’s 53.8, indicating continued growth in manufacturing activity.
It was a two year high for the official measure and the 20th straight month that the index was above 50, the dividing line between expansion and contraction.
The result came as a surprise to some economists, especially those polled by US newsagencies who forecasted a fall.
The news will be considered by the Reserve Bank board at today’s rate setting meeting.
if anything, it is a slight negative for those hoping for no rate rise, but it probably won’t be enough to force an increase, not with the Fed poised to enter unchartered territory with a second round of massive spending and inflation in Australia running comfortably under the RBA’s target zone.
This strong result from China’s official survey was confirmed by the private sector China HSBC PMI, which rose to 54.8 in October, from 52.9 the previous month.
HSBC said the increases represented “one of the largest month-on-month rises in the PMI since the start of the series in April 2004.
“Another upbeat reading for the HSBC China Manufacturing PMI suggests the strong growth momentum in domestic demand to warrant around 9% [gross domestic product] growth in [the fourth quarter], despite the still-soft increase in new exports orders,” said Hongbin Qu, chief economist for China at HSBC in a quote on Marketwatch..
“The jump in output prices reflects higher input costs amidst strong demand, which also heralds a higher CPI likely to reach its cyclical peak in October,” Qu said.
In the official report, an index of input prices rose to 69.9 in October from 65.3 in September, the biggest gain of 11 sub-indexes.
Manufacturers’ new orders are near boom levels, boosted by domestic spending, including the construction of welfare homes and accelerated work on stimulus projects, the logistics federation said.
In contrast, a measure of new export orders slipped to 52.6 from 52.8.
The two reports confirm the message from the country’s central bank which last week highlighted the economy’s momentum.
They also suggest that the People’s Bank of China got in its surprise rate rise with good timing two weeks ago.
In the HSBC survey, both input and output prices rose at their fastest pace in 27 months.
Manufacturing executives pointed to higher raw material costs – especially, coal, cotton, grain and steel – and said that they had increased output prices to protect their profit margins.
The news of the acceleration of growth as shown in both surveys does sit a bit oddly with official industrial production figures which continue to ease.
Chinese growth has been decelerating, at least in year-on-year terms, throughout the year.
Industrial production was running at 19% annual growth at the start of 2010, in September it was down to just under 14% annual.
And economic growth has slowed from the 11.9% annual pace in the first quarter to 10.3% in the three months to June and 9.6% in the September quarter.
The government-backed PMI, released by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, covers more than 820 companies in 20 industries, including energy, metallurgy, textiles, automobiles and electronics.
The HSBC survey covers more than 400 manufacturers.
In contrast, the US reported on Friday that its economy grew at a sluggish 2% annual rate in the September quarter, reinforcing expectations that the Federal Reserve will ease monetary policy by embarking on a new program of bond purchases.
The Institute for Supply Management’s manufacturing index hit 56.9 in October from 54.4 in September. The reading was expected to have eased to 54, thanks to a rise in new orders.
And Japan reported a sharper than expected 1.9% fall in industrial output for September, as well as weaker exports and continuing deep deflation.
But the HSBC PMI for India, Asia’s third-largest economy, rose to 57.2 in October from 55.1 in September.
"The manufacturing sector remains supported by strong local consumption growth, and growing employment suggests that domestic demand will remain robust," Frederic Neumann, co-head of Asian Economics Research at HSBC, said in a statement.
India’s Reserve Bank is expected to raise rates again at a meeting this week.
