China’s manufacturers miss their Xmas bounce

China’s official manufacturing purchasing mangers index (PMI) improved for the second month in September 2011.  The headline PMI rose from 50.9 in August to 51.2 in September, just slightly above market expectation of 51.1.

New orders index increased slightly from 51.1 to 51.3, and output rose from 52.3 to 52.7.  Finished goods inventory increased from 48.9 to 49.9, indicating relatively robust manufacturing activity.

Input price fell from 57.2 to 56.6 after rising in July, indicating that while inflationary pressures are still present, they are relatively stable for now.  Last month I noted that the new export orders index fell to below 50 for the first time since the economic recovery.  For September, however, the new export orders increased from 48.3 to 50.9, which should provide a small relief for the time being:

 

However, there are reasons for ongoing concern. While the manufacturing PMI is still showing very modest pace of expansion, the HSBC’s survey has been in sub-50 territory for 3 months, so manufacturing in China is only expanding in a slow pace, if at all.  When if we compare the September PMI this year with the same month of previous years, the slight seasonal rebound of September of this year is much more muted.  It is also worth pointing out that the current September reading is exactly the same as the September 2008 reading.

Furthermore, if you look at the new exports order alone, September is traditionally a strong month probably due to the Christmas orders.  The September reading for this component of the PMI is therefore unimpressive:

Overall, it is a result which provides a bit of a relief, but I don’t want to read too much into one month of data as the economic outlook remains very uncertain. 

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Comments

  1. These are surveys without error bars. Kind of like Family Feud. China’s manufacturing may currently still be contracting, or may have never been contracting in 2011. Hard to say based on this data.

  2. For the past 10 years I have managed an electronics manufacturing business in South China. In the past 3 months many companies in my supply chain have expressed concern over reductions in size of their order books with some seeing September sales off by almost 40%. Customers have requested scheduled shipments to be moved out for 2 to 3 months, expansion plans have been put on hold and it’s back to strictly managing costs and “hoping” that orders will pick up. I also know a few small Aussie manufactuers that are currently winding up their China operations due to a complete loss of Euro and USA orders over the past quarter.

    I am sure that Foxconn will still manufacture plenty of i-stuff in preparation for Christmas but there will be plenty of smaller China manufacturers that will be buying a smaller pudding this Christmas.

  3. +1

    As a small Aus importer we are finding it easier to get our stuff manufactured right now as compared to 6 months ago. It should be the opposite.
    Similarly by this time of year the factories become very uninterested in us as the huge North American and Eurpoean orders are scheduled. It is less so at the moment.
    Nevertheless problems with keeping and attracting workers to our sort of factories (generally Lower end)are acute.