China: Modest positive surprise for the official NBS manufacturing PMI - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that August provided a modest positive surprise for the official NBS manufacturing PMI of China, with the headline index rising from 51.4 to 51.7 – the same level as June.

Key Quotes

“In the past 12 months, this index has averaged 51.4 and oscillated between 50.4 and 51.8 (March 2017).”

“The NBS non-manufacturing PMI meanwhile fell from 54.5 to 53.4. August is the weakest month since May 2016 for the services sector and sees the index 0.9ppts below the 12-month average and 2.5ppts below its long-run average.”

“Whereas in the first half of 2017, external demand looked to be stronger than domestic demand, it now seems that the additional momentum in external demand has subsided.”

“For the manufacturing sector, the export order index has fallen from 0.7ppts above average in June to 0.9ppts below currently. The total orders index is unchanged from June at –0.6ppts.”

“For services, new export orders topped out at 1.5ppts above average in July, falling back to –1.6ppts in August – consistent with total new business, –1.5ppts.”

“The employment series continue to tell an interesting story. Respondents to the NBS manufacturing survey are more positive than both the Caixin manufacturing sample and the NBS’ services participants.”

“Whereas the NBS manufacturing employment index is just 0.6ppts below average, the NBS services index is 1.9ppts lower. At July, the Caixin manufacturing employment index was similarly 2.3ppts below its average level. This is not just a one-off, with the divergence evident since November 2016.”

“To our mind this suggests that, if there is a near-term risk to the China growth outlook, it is the consumer’s willingness to spend.”

“If the consumer is to become responsible for a greater share of aggregate activity in future years, then higher-value jobs must be created and remunerated accordingly. At this stage, it instead looks as though business owners are looking to mitigate unit cost pressures to maximise their profitability.”

“We remain positive on growth in China in 2017 and 2018, but it will be the industrial sector that drives the result.”