April survey data pointed to a further marginal improvement in operating conditions across China’s manufacturing sector. Although output rose at a slightly quicker rate, new order growth slowed amid a renewed fall in new export work. Consequently, purchasing activity rose only modestly, while firms noted higher inventories of both inputs and finished items. Staffing levels continued to decline, which in turn contributed to a further increase in unfinished workloads. Price pressures were relatively muted, with both input costs and output charges rising at much softer rates than those seen at the turn of the year. Softer demand conditions weighed on optimism towards the year ahead, with the degree of positive sentiment edging down to a four-month low in April.
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – registered 51.1 in April, up fractionally from 51.0 in March. Operating conditions have now strengthened in each of the past 11 months, though the pace of improvement was only marginal.
Manufacturing production in China continued to increase during April. That said, the rate of expansion was modest, despite picking up slightly since March. According to panellists, output was raised in line with higher new order inflows. Indeed, latest data showed that total new business rose at the start of the second quarter, albeit at the slowest pace for seven months. Data indicated that weaker demand in international markets had partly weighed on overall growth, with new export sales declining for the first time since November 2016 (though only marginally).
Subdued demand conditions coincided with a further reduction in headcounts in April. A number of companies commented on the nonreplacement of voluntary leavers alongside efforts to improve operating margins. That said, the rate of job shedding was only slight, having eased to the least marked for three months. Concurrently, higher new work placed further pressure on operating capacities, as highlighted by a sustained rise in backlogs of work.
Companies continued to increase their purchasing activity in response to greater new order volumes. Although improving from March, the pace of growth remained modest overall. At the same time, companies were relatively cautious with regards to inventories, with stocks of finished items and purchased inputs both rising only slightly.
Delivery times for inputs at Chinese goods producers continued to increase in April amid reports of capacity pressures at suppliers. That said, the rate at which lead times lengthened was moderate.
Inflationary pressures were relatively muted in April, with the rate of input price inflation little-changed from March and output charges rising only modestly.
Confidence towards the year ahead dipped to a four-month low in April, with some firms citing concerns over future market conditions and the strength of global demand.
Not falling over but not exactly tearing it up, either. Slowing ahead as new orders soften:
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.
