TERRIBLE MANUFACTURING PMI
Latest survey data signalled the quickest deterioration in operating conditions faced by Chinese manufacturers since March 2009. Total new work fell at the quickest rate in over three years, partly driven by a steeper fall in new export business. As a result, companies cut output at the sharpest rate in six-and-a-half years, while staff numbers fell at the quickest pace since the start of 2009. Reduced production schedules also prompted firms to lower their purchasing activity again in September, while disappointing sales led to the strongest increase in stocks of finished goods for over three years. On the price front, both input costs and output charges fell at sharper rates.
Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) registered at 47.2 in September, down fractionally from 47.3 in August. The health of the sector has now deteriorated in each of the past seven months. Furthermore, the latest deterioration was the most marked since March 2009.
A key factor weighing on the headline index was a sharper contraction of manufacturing output in September. According to panellists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.
Reflective of lower workloads, manufacturing companies cut their staff numbers again in September. Moreover, the latest reduction in employment was the fastest seen in 80 months. Meanwhile, reduced production capacity led to an increased amount of unfinished work, though the pace of backlog accumulation was only slight.
Input buying fell for the third month in a row in September, amid reports of lower production schedules and fewer new orders. As a result, stocks of inputs declined again in September at a modest pace. A number of panellists mentioned adjusting their inventories to reflect reduced production requirements. Meanwhile, disappointing sales led to a build-up in stocks of finished goods for the second consecutive month. Moreover, the pace of accumulation was the strongest seen since August 2012.
Manufacturing companies noted a further steep decline in average cost burdens during September. Furthermore, the rate of deflation was the sharpest seen since April. Reports from panellists mentioned that lower raw material prices, particularly for oil-related products, had cut overall input costs. Increased competition for new work led manufacturing companies to generally pass on their savings to clients, as highlighted by a solid decline in output charges.
COMPOSITE AND SERVICES PMI ALSO WEAK
The latest Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled a second successive monthly decline in total Chinese business activity during September. Furthermore, the Caixin Composite Output Index posted at 48.0, down from 48.8 in August, and signalled the fastest rate of contraction since January 2009.
The sharper decline in total business activity primarily reflected a steeper contraction of manufacturing output in September. Moreover, the latest fall in manufacturing production was the fastest seen in six-and-a-half years.
Meanwhile, service sector companies continued to signal increased business activity in September, though the rate of expansion was only slight. This was signalled by the Caixin China General Services Business Activity Index posting marginally above the neutral 50.0 value at 50.5 in September, down from 51.5, and its lowest reading in 14 months.
September data pointed to a faster decline in total new business placed at manufacturing companies, while service providers saw only a marginal expansion in new work. Furthermore, it was the slowest rate of new order growth recorded in the service sector since July 2014. According to anecdotal evidence, the military parades that celebrated the 70th anniversary of the end of the second world war had partly dampened customer numbers and new business. With new work at manufacturers falling sharply, composite new orders declined at the fastest pace since March 2009.
Employment trends continued to diverge across the manufacturing and services sectors in September. Manufacturers cut their workforce numbers at a solid pace that was similar to that seen in the prior month, while service providers continued to increase their payroll numbers. However, the rate of job creation was only slight, despite improving upon August’s fractional pace. Consequently, employment at the composite level declined for the fourth successive month.
Manufacturing companies signalled a further increase in outstanding workloads in September, which was often linked to reduced productive capacity. Meanwhile, softer growth in new work enabled service sector firms to work through their unfinished business in September and at the fastest rate in ten months. Overall, backlogs of work declined again at the composite level, albeit at a marginal rate.
Average input costs fell markedly at Chinese manufacturing companies in September, while service sector companies reported a further rise in cost burdens. That said, the rate of cost inflation was the slowest seen in three months and only slight. Consequently, input prices fell for the thirteenth month in succession at the composite level.
Latest data signalled that both manufacturers and service providers cut their prices charged in September, with both sectors citing relatively weak client demand as a key factor leading them to discount their tariffs. Furthermore, it was the fastest reduction in service sector selling prices since June 2012. At the composite level, output charges fell at the quickest rate for a year-and-a-half.