China’s manufacturing sector continued to expand at the start of 2018, with production rising to the greatest extent in just over a year. Growth was supported by further, albeit slightly softer, increases in total new work and new export sales. Higher production requirements led firms to increase their buying activity, while employment fell at the weakest pace for nearly three years. Capacity pressures meanwhile persisted, with backlogs of work rising to the greatest extent since early-2011. Prices data showed that input cost inflation eased to a fivemonth low and factory gate charges rose only slightly. Looking ahead, companies were generally optimistic that output would rise over the next year. Moreover, the degree of confidence strengthened to a four-month high.
The seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – was unchanged from December’s reading of 51.5 in January, to signal a further modest improvement in overall operating conditions.
The health of the sector has now strengthened in each of the past eight months, while the pace of improvement was slightly stronger than the long-run trend. January data signalled a solid and accelerated increase in Chinese manufacturing output, with the rate of growth the strongest since December 2016.
A number of companies mentioned that improving demand conditions and rising new work led them to raise output. Notably, total new orders rose for the nineteenth month in a row, albeit at a moderate pace that was weaker than in December. Growth in new export sales also softened to a similarly modest pace.
Slowing new orders the key. Again, could be shutdowns. Or not.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
