Chinese manufacturers signalled a modest deterioration in operating conditions at the start of 2016, with both output and employment declining at slightly faster rates than in December. Total new business meanwhile fell at the weakest rate in seven months, and despite a faster decline in new export work. Nonetheless, lower production requirements led companies to cut back on their purchasing activity and inventories of inputs. On the prices front, both input costs and output charges fell again in January, though at the weakest rates in seven months.
At 48.4 in January, the seasonally adjusted Purchasing Managers’ Index™ (PMI™) remained below the crucial 50.0 value separating growth from contraction for the eleventh successive month. The reading was up slightly from 48.2 in December, and signalled a further modest deterioration in the overall health of China’s manufacturing sector.
Production at Chinese goods producers fell for the second successive month in January. Though modest, the rate of contraction was the fastest seen in four months. According to panellists, relatively weak market conditions and fewer new orders had led firms to cut production. This was highlighted by a further fall in total new business placed at Chinese manufacturers at the start of 2016. That said, the rate of contraction was the slowest seen in seven months, despite a quicker decline in new export work.
Latest data signalled a further decline in Chinese manufacturing employment, with the rate of job shedding quickening to a four-month record in January. Panellists that registered lower staff numbers generally attributed this to company down-sizing policies and the nonreplacement of voluntary leavers as workloads were insufficient. Meanwhile, backlogs of work increased for the ninth month in a row in January, albeit only slightly.
Reflective of lower output requirements, goods producers cut their purchasing activity again at the start of 2016. That said, the rate of reduction was the slowest seen in the current seven-month sequence of decline. This in turn contributed to a further modest fall in stocks of inputs in January. Meanwhile, disappointing sales led to a slight accumulation of inventories of finished goods for the second month in a row. Average supplier performance deteriorated for the first time in three months in January. However, the degree to which lead times increased was only marginal.
Weaker client demand led manufacturers to discount their prices charged again in January, thereby extending the current sequence of deflation to 18 months (although the rate of reduction was the slowest seen since June 2015). Lower selling prices were supported by a further fall in average input costs at the start of the year. In line with the trend for charges, the rate of decline eased to the weakest in seven months. Lower cost burdens were generally linked to reduced raw material prices.