Overall, economic conditions in the second quarter were considerably weaker than in the first quarter, which means there has been no easing of the downward pressure on growth.
Chinese manufacturers reported the sharpest deterioration in operating conditions for four months in June, with output falling at the quickest rate since February amid a further drop in new work. Consequently, companies continued to pare back their staff numbers at a solid pace, while trimming their inventory holdings of inputs and finished goods further. Prices data indicated a renewed fall in cost burdens faced by Chinese goods producers, while output charges were left broadly unchanged after a three-month sequence of inflation.
Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) registered at 48.6 in June, down from 49.2 in May, to signal a further deterioration in the health of China’s manufacturing sector. Furthermore, the rate of deterioration, though moderate, was the fastest seen in four months.
A faster contraction of manufacturing output weighed on the headline index in June. Furthermore, it was the quickest reduction in production for four months. Panellists widely commented that poor market conditions and a drop in new work had led them to cut output. Weaker client demand was highlighted by a second successive monthly fall in total new work placed at manufacturing firms during June, albeit marginal. Data suggested that part of the weakness stemmed from softer foreign client demand, with new export sales declining for the seventh month in a row and at a moderate pace.
As part of efforts to cut costs and raise efficiency, businesses reduced their staffing levels again in June. Employment in the sector has now fallen in each of the past 32 months. Furthermore, the rate of contraction was similar to those seen in the preceding four months and solid. Meanwhile, backlogs of work rose, with some respondents linking growth to new product developments. Though modest, it was the fastest rise in outstanding workloads for a year-and-a-half.
Fewer new orders contributed to a reduced amount of purchasing activity across China’s manufacturing sector in June, though the rate of reduction was only slight. At the same time, companies maintained tighter inventory policies, with stocks of both pre-production and finished goods falling, albeit at slower rates than in the previous month.
Despite another drop in input buying, lead times for deliveries continued to lengthen in June amid reports of stock shortages at vendors. However, the rate at which supplier performance deteriorated was only slight.
After a three-month sequence of inflation, average cost burdens faced by Chinese goods producers fell in June. Some respondents mentioned that deflationary pressures stemmed from lower raw material costs. That said, the rate of reduction was marginal overall. Meanwhile, prices charged by Chinese manufacturers were broadly unchanged since the previous month.
China’s official PMI:
China’s National Bureau of Statistics reported Friday that the official manufacturing purchasing managers index edged down to 50.0 in June, the level that separates expansion from contraction, from 50.1 in May.
Official subindexes measuring new orders and raw material inventory both declined in June from May, while the official production subindex improved slightly, the statistics bureau said. China’s official nonmanufacturing PMI, which measures activity in the service sector and which was also released Friday, rose to 53.7 in June from 53.1 in May. (WSJ)