From Capital Economics:
Today’s PMI readings suggest that the recent cyclical pick-up in activity continued to gain momentum going into Q4.
The Caixin manufacturing PMI jumped in October, from 50.1 to a 27-month high of 51.2. The increase was larger than anticipated (the Bloomberg median was 50.1, our forecast was 50.3). The official manufacturing PMI also beat expectations, rising from 50.4 to 51.2 (Bloomberg 50.3, CE 50.6).
The breakdown of the PMIs show large pick-ups in the output and new orders components. Stronger domestic demand appears to be responsible, with the new export orders sub-index of both PMIs actually falling. The employment components continued to recover and the price indices hit multi-year highs, pointing to further increases in producer prices.
The breakdown of the official PMI by firm size suggests that the latest improvement in conditions has been concentrated among small and medium sized firms – the sub-index for large firms actually edged down. This is consistent with the big increase in the Caixin PMI, which is skewed towards smaller private firms, and suggests the policymakers’ recent efforts to support the private sector may be bearing some fruit.
There were also signs of improvement in the broader economy, with the official non-manufacturing PMI rising from 53.7 to a 10-month high of 54.0. The sub-index for the construction sector edged down but this was more than offset by a pick-up in the service sector sub-index.
Overall, today’s data are unambiguously upbeat and consistent with broader evidence that the economy is currently in the midst of a cyclical recovery. Given the continued feed through from earlier policy easing, we expect activity to hold up well until early next year. Beyond that, however, the recovery is likely to stall as the boost from stimulus fades, re-exposing the structural drags that continue to weigh on the economy.
Yep.
