From Westpac’s Huw McKay comes the following dissection of China’s various Performance of Manufacturing Index (PMI) surveys, released late last week and over the weekend.
The official NBS manufacturing PMI declined to 50.5 in December from 51.0 in December. The survey detail describes an industrial sector experiencing modest growth against a backdrop of mediocre demand and lean inventories. The final estimate of the alternative Markit-HSBC PMI – with its ‘overweight exporters’ and relatively small sample – was 49.5, a 1.0pt decline from December.
We have little confidence in the seasonal adjustment process for any Chinese data series in the months of January and February, and the sharp move in the private series in January looks to be at least partly related to some shortcomings in this area.
The major conundrum presented by the two surveys over the course of 2013 – the inconsistent story in relation to finished goods inventories – remains an issue. In December, both surveys were talking about inventories declining, but the in-month move was considerably different in scale and the level was too far apart to be certain about the strength of the signal. In the January updates, the NBS PMI produced a 46.5 reading (+0.3pts from Dec, which was the lowest outcome since Oct-10), while HSBC was at 50.6, (+1.1pts from Dec) a rounded gap of 4.2pts (3.3 in Nov), which is very large by historical standards. The official series is thus describing an exceptionally lean inventory position while its private counterpart has them at troublingly high levels.
One area where the two surveys do agree is external demand. The new export orders series in the two surveys remain sub 50, where they were a month ago when official trade data disappointed.
Continuing the theme of inconsistency, the new orders to finished goods inventories ratios disagree on the likely direction of change in next month’s surveys. The levels of the two ratios indicate respectively collapse (HSBC) and moderate expansion (NBS). It seems safe to say that we didn’t learn very much about the underlying state of Chinese manufacturing from these two surveys, and we are unlikely to do so until the March releases become available in early April.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
