Edge and Odds

The enemy of knowledge is not ignorance, it’s the illusion of knowledge (Stephen Hawking)

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so (Mark Twain)

Edge and Odds

Invest with smart knowledge and objective odds

Month: June 2014

HSBC CHINA MANUFACTURING PMI AT 49.4 IN MAY

Latest data signalled that operating conditions in China’s manufacturing sector deteriorated only marginally in May. Output contracted at a fractional pace, while new orders stabilised after a three-month sequence of decline. Subdued client demand was linked by panellists to relatively weak market conditions. In contrast, new export orders rose at the quickest pace in over four years, with a number of companies citing new client wins. Job shedding meanwhile persisted, with the latest reduction of workforce numbers the strongest in three months.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 49.4 in May, down slightly from the earlier flash reading of 49.7, and up from 48.1 in April. The reading signalled only a marginal deterioration in business conditions. The health of the sector, however, has now deteriorated in each month of 2014 so far.image

Manufacturers in China reported a fourth successive monthly fall in output during May. That said, the rate of contraction was only fractional. According to panellists,
uncertain economic conditions led some firms to lower production over the month. Total new business was unchanged in May, following a three-month sequence of
reduction. Data suggested that muted domestic demand hindered overall new work wins, as new export orders rose at the fastest rate since April 2010.

Improving demand conditions led to an increased amount of purchasing activity in May, albeit only marginal. Nonetheless, it was the first time that input buying had increased in four months. Stocks of purchases were relatively unchanged in May, ending a three-month sequence of depletion. Inventories of finished goods fell for the first time in 2014 so far, though only slightly, as some companies increased their use of current stocks to meet new incoming orders.

Employment at manufacturing companies declined again in May, as has been the case since November 2013. The rate of reduction was marked overall, and partly driven by company down-sizing policies. Despite lower staffing levels, backlogs of work also declined. Average cost burdens fell again in May, though the rate of deflation was the weakest in the current five-month sequence. In contrast, output charges increased for the first time in 2014 so far, with some firms commenting that improved demand conditions boosted pricing power.

MARKIT U.S. MANUFACTURING PMI POINTS TO STRONGER GROWTH

Very strong report.

May data signalled that output growth in the U.S. manufacturing sector continued to accelerate through the second quarter of 2014, supported by another sharp improvement in new business volumes. Greater production requirements and efforts to rebuild stocks of purchases meanwhile contributed to a survey-record increase in input buying during the latest survey period.

Adjusted for seasonal influences, the final Markit U.S. Manufacturing PMI picked up to 56.4 in May, from 55.4 in April. The latest survey pointed to a steep increase in production levels, with the rate of expansion accelerating for the second month running to the fastest since February 2011. Anecdotal evidence from survey respondents cited improving underlying demand, better economic conditions and greater investment spending among clients.

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Volumes of new work received by manufacturing companies continued to increase at a robust pace in May. The latest rise in new business was supported by a combination of increased domestic demand and the most marked rise in new export work since July 2013. A number of companies cited rising spending patterns among clients in developed markets.

imageHigher levels of new business placed some pressures on operating capacity in May, as highlighted by a robust and accelerated increase in backlogs of work in the manufacturing sector. An accumulation of outstanding work also supported job creation in May, with manufacturing payroll numbers increasing for the eleventh successive month.

Manufacturers indicated a renewed rise in preproduction inventory levels in May, and the rate of expansion was the most marked since April 2012. Increased stocks of purchases reflected the steepest expansion of input buying since the survey began in late 2009. Meanwhile, stronger demand for raw materials led to a deterioration in supplier performance for the eleventh month running in May.

Pointing up Meanwhile, the latest survey signalled that input cost inflation picked up to its fastest since January. Despite a strong increase in input prices, May data indicated that factory gate price inflation was only marginal and the weakest for almost two years.

May data indicated that large manufacturers (more than 500 employees) registered the fastest output expansion of the three company size categories monitored by the survey. However, large manufacturers saw job creation ease to only a marginal pace that was the slowest for 11 months in May. In contrast, small and medium sized manufacturers indicated an upturn in employment growth during the latest survey period.

Consumer goods producers recorded the strongest improvement in overall business conditions of the three market groups monitored by the survey in May. Latest data pointed to the sharpest rise in new business received by consumer goods producers for just over four years. Only the investment goods sector posted a moderation in new order growth in the latest survey period.

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