Yes, China’s vital manufacturing sector continues to slow, but we shouldn’t get too alarmed because according to the latest survey, activity is running roughly where it was in February of this year.
In fact, compared to what has been reported from US manufacturing and parts of Europe, the Chinese sector is robust with only a slight softening seen in May.
The official Chinese government Purchasing Managers Index (PMI) of the country’s manufacturing sector fell 0.9 percentage point month-on-month to 52%, according to the China Federation of Logistics and Purchasing (CFLP).
It was the second consecutive month of decline for the PMI, which (like similar surveys) measures manufacturing expansion.
That was down from 52.9 in April, which is a clear slowing. And compared to March’s reading of 53.4, May’s outcome was a definite slowing.
But the survey showed readings of 52.2 in February and 52.9 in January, so the actual level of expansion is not much different from the start of the year, a bit slower, but not as large as from March.
So the data adds to the view that the world’s second-biggest economy is slowing marginally but does not point to a sharp slowdown in its vast manufacturing sector.
The official reading was slightly above the final figure from the HSBC/Markit PMI of 51.6, down from April’s 51.8.
May’s outcome was a 10 month low, but the sector is still in expansion mode.
The Flash China Manufacturing PMI issued two weeks ago showed a reading of 51.1 (51.8 in March).
The Flash Manufacturing Output Index showed a reading of 51.6 (53.5 in March), a 9 month low.
It also said input-cost inflation slowed to a nine-month low for the month of 60.3, from 66.2, suggesting an easing in wholesale inflation.
Data released separately by HSBC also showed a similar slowdown in manufacturing activity in India, South Korea and Taiwan during May.
America’s Institute for Supply Management May survey of factory supply managers was disappointing and helped spark a big sell off on Wall Street (along with a low jobs report).
The market fell more 2% on fears economy is now slowing more rapidly that thought.
And the key US 10 year bond saw its yield fall under 3% for the first time since last December, closing at 2.97%.
The ISM factory index sank by nearly seven points to 53.5%, the largest drop in nine years.
The final euro-zone manufacturing-purchasing-managers index, compiled by the London data provider Markit, fell to 54.6 for last month from 58 in April.
The initial, or flash, estimate for the May figure had been 54.8. The decline in the index was the sharpest since November 2008, Markit said, "as manufacturers reported slower rates of increase in output, new orders, employment and inventory accumulation."
The report said that in all the countries covered, the purchasing-managers indexes "signaled a broad-based slowdown in the pace of recovery, with headline [indexes] retreating from their April levels."
A survey by the Australian Industry Group-PricewaterhouseCoopers found a similar slowing (from a lower level) in manufacturing last month (See below).
The news from China saw the Shanghai market lose 0.3% and the Hong Kong market a similar amount.
And some economists pointed to the fact that the fall in orders was bigger than the fall in the overall PMI, suggesting the slowdown was bottoming out.
(The 50-point level in the PMI demarcates expansion from contraction, with a reading above 50 indicating growth.)
The falls in the two Chinese PMIs were nowhere near the surprise (nor caused the surprise) of the drop in the Chicago Purchasing Managers index in the US on Tuesday.
It fell to 56.6 in May, from 67.6 in April. Manufacturing in the US is still expanding, but the pace slowed dramatically.
That’s in keeping with Fed surveys in the New York, Richmond and Philadelphia regions in the past month.
US manufacturing growth has definitely tipped over and the market is now starting to worry that it will slide right through the 50 level into contraction.
Not helping sentiment in the US was a surprisingly large slump in US consumer confidence in May.
The respected US Conference Board’s consumer sentiment index declined to 60.8 in May, from 65.4 in April. Economists were expecting consumer confidence to rise to 66.3.
(Unlike the PMIs, a reading of 50 is not the cut off between pessimism and optimism, that’s around 100. Australia’s consumer confidence is around 103 to around 112, depending on which survey you read).
In Australia, our manufacturing sector remains in a contraction phase.
The Australian Industry Group/PriceWaterhouseCoopers Australian Performance of Manufacturing Index (PMI) fell 0.7 points in May to 47.7.
It was the third consecutive monthly contraction and the sector was hit by weak domestic demand, cheap imports and the strong Australian dollar (the usual culprits this year).
The survey said the fall in manufacturing activity was largest in the clothing and footwear and petroleum and coal products sub-sectors and nine of the 12 manufacturing sub-sectors posted declines in activity for the month.
Manufacturing inventories decreased in the month with the seasonally adjusted sub-index down 4.9 points at 44.4.
Seasonally adjusted, the production sub-index fell 6.4 points to 46.9 and new orders declined 2.2 points to 48.6.
The seasonally adjusted employment sub-index increased 1.4 points in May to 46.4, showing a slowing in contraction.
The only states to record an expansion in manufacturing activity were Western Australia and Tasmania.
