No surprise there:
PMI data indicated that operating conditions across China’s manufacturing sector were broadly stable at the start of the third quarter. Output was little-changed following a decline in June amid a slight increase in overall new orders. Subdued demand conditions nonetheless prompted firms to lower their workforce numbers again in July, and at a quicker pace, while inventories of both inputs and finished goods declined. Cost pressures weakened, with input prices rising only slightly while selling prices fell. Encouragingly, business confidence regarding the year ahead outlook for output picked up from June’s record low, but remained subdued over lingering concerns regarding the China-US trade dispute and softer global economic conditions.
At 49.9 in July, 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 – posted only fractionally below the neutral 50.0 level to signal broadly stable conditions across China’s manufacturing sector. This followed a marginal deterioration in the health of the sector during June (PMI reading of 49.4).
The improvement in the headline index was partly down to the broad stabilisation of output in July, following a marginal drop in June. Some firms commented that relatively firmer demand conditions had led them to leave production volumes unchanged. Total new orders rose at a fractional pace after a modest decline at the end of the second quarter. The upturn was likely driven by stronger domestic demand, as new export orders were little-changed in July. Some companies commented that the ongoing trade dispute with the US continued to weigh on export sales.
Muted order book trends led companies to reduce their headcounts for the fourth month in a row, and at the quickest pace since February. However, a lack of personnel was cited as a key reason for a further increase in unfinished work. That said, the rate of backlog accumulation remained modest.
Following a reduction in June, buying activity rose slightly at the start of the third quarter. However, manufacturers adopted a cautious approach to inventories in light of relatively soft demand conditions, with inputs of both purchased items and post-production goods falling in July.
Chinese manufacturers indicated that average input costs rose again in July. However, the rate of increase was marginal. At the same time, efforts to stimulate customer demand and boost new order intakes led firms to cut their selling prices for the first time since January.
After slipping to its lowest on record in June, business confidence regarding output for the year ahead improved to a three-month high in July. Optimism was often linked to forecasts of improving market conditions and new products. However, concerns over the outcome of ongoing trade negotiations with the US continued to weigh on overall sentiment.