Chinese manufacturers saw a further improvement in overall operating conditions in August. That said, the pace of improvement eased to a fractional pace as both
output and new order growth slowed and job shedding in the sector persisted. Meanwhile, input costs declined for the first time in three months while increased
competition for new business led manufacturers to reduce their selling prices.
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) posted at 50.2 in August, down from July‟s 18-month high of 51.7. This signalled only a fractional pace of improvement that was the weakest in three months.
The decline in the headline index partly reflected slower expansions of both output and total new business during August. The rates of production and new order growth were moderate overall, having eased from 16- month highs in July. Data suggested that client demand softened both at home and abroad, as new export work also rose at a weaker pace in August. While some panellists mentioned that improving market conditions and new client wins boosted new work intakes, others commented on relatively subdued client demand.
As has been the case since November 2013, manufacturing firms in China continued to reduce their staffing levels in August. Furthermore, the rate of job shedding was the quickest in three months and moderate overall. Companies that reported lower workforce numbers partly attributed this to the implementation of cost reduction policies. Despite lower staff numbers, backlogs of work rose for the third successive month in August, albeit marginally.
In response to greater volumes of new work, firms raised their purchasing activity for the fourth month running in August. That said, the rate of growth weakened from July and was modest overall. In contrast, stocks of purchases declined moderately over the month following a slight expansion in July. A number of respondents increased their use of current inventories as part of ongoing efforts to readjust inventory levels.
Average input costs faced by Chinese manufacturers declined in August. However, the rate of reduction was only slight. Selling prices set by manufacturers also
declined, albeit marginally. Anecdotal evidence suggested that a number of companies reduced their selling prices as part of efforts to increase new business.
The Chinese government’s official purchasing manager’s index fell for the first time since February, from a two-year high of 51.7 in July to 51.1 in August.
The drop in the official PMI in August was broad-based, with the biggest falls in output and new orders.
New export orders also fell but by a smaller margin, indicating that manufacturing weakness last month was primarily the result of lacklustre domestic demand. (FT)