Chinese manufacturers saw the quickest deterioration in operating conditions for over six years in August, according to latest business survey data. Total new orders and new export business both declined at sharper rates than in July, and contributed to the most marked contraction of output since November 2011. Lower production requirements prompted companies to reduce their purchasing activity at the fastest rate since March 2009, while weaker client demand led to the first rise in stocks of finished goods in six months. Meanwhile, softer demand conditions contributed to marked falls in both input costs and output charges in August.
Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) registered at 47.3 in August, up slightly from the earlier flash reading of 47.1, but down from 47.8 in July. The PMI has now posted below the neutral 50.0 value for six successive months, with the latest deterioration in operating conditions the sharpest since March 2009.
August data signalled a second successive monthly fall in total new work placed at Chinese goods producers, with the rate of contraction quickening to a 17-month record. Panellists generally suggested that deteriorating market conditions had weakened client demand both at home and abroad during August. Furthermore, new export business declined at the steepest rate in just over two years.
Softer client demand led manufacturers to scale back their production again in August, with the latest reduction in output the quickest seen since November 2011.
Lower production requirements contributed to a further decline in purchasing activity in China’s manufacturing sector in August. Moreover, the rate of reduction quickened since July to the steepest recorded since March 2009. As a result, stocks of inputs also fell over the month, albeit at a modest rate. In contrast, inventories of finished goods rose slightly in August, with a number of companies suggesting that fewer sales had led to an accumulation of post-production stocks.
Chinese manufacturing companies reduced their workforce numbers for the twenty-second month in a row in August. Furthermore, the rate of job shedding accelerated since July to a pace that was similar to June’s 76-month record. Meanwhile, unfinished business increased for the fourth successive month, albeit only marginally.
Manufacturing firms in China signalled a further fall in total input costs in August, with a number of monitored companies linking the decline to lower raw material costs. The rate of input price deflation was solid overall, despite easing since July. In line with the trend for cost burdens, Chinese goods producers reduced their factory gate charges in August, thereby extending the current sequence of deflation to 13 months. Anecdotal evidence suggested that firms lowered their tariffs in order to pass on lower input costs to clients, but also as part of efforts to attract new business.
SERVICES AND COMPOSITE PMI:
Caixin China Composite PMI™ data (which covers both manufacturing and services) pointed to a renewed fall in overall Chinese business activity in August. This was highlighted by the Caixin Composite Output Index posting below the neutral 50.0 value at 48.8, down from 50.2 in July. Though only modest, it was the fastest contraction of output seen since February 2009.
The renewed decline in overall output was largely driven by a faster contraction of manufacturing production in August. Furthermore, the latest fall in manufacturing output was the quickest seen in 45 months. Meanwhile, slower growth in service sector business activity also weighed on the headline index. The Caixin China General Services Business Activity Index posted at 51.5 in August, down from 53.8 in July, and signalled the slowest increase in activity in the current 13-month sequence of expansion.
Total new order growth at service sector companies also weakened in August, with the latest increase in new business the slowest seen in just over a year. According to anecdotal evidence, relatively subdued market conditions had dampened client demand in the latest survey period. Meanwhile, new orders contracted again at Chinese manufacturing companies in August, with the rate of reduction quickening to a 17-month record. Consequently, total new business at the composite level fell for the first time since April 2014, albeit marginally.
Softer activity and new order growth led to a slower increase in service sector employment in August. Moreover, the latest expansion in service providers’ staff numbers was the weakest seen in the current two-year sequence of job creation and fractional. Job shedding persisted at manufacturing companies, with the pace of reduction quickening slightly since July. Overall, composite employment fell for the third month in a row and at a modest pace.
Service sector companies registered lower backlogs of work for the seventh successive month in August. That said, the rate of depletion was moderate overall. According to panellists, weaker growth in new work enabled firms to complete unfinished business. Outstanding workloads meanwhile rose at manufacturing companies, though the rate of accumulation remained marginal overall. The level of work-in-hand (but not yet completed) at the composite level fell for the fifth straight month, though only fractionally.
Cost trends continued to differ between manufacturers and service providers in August. Service sector businesses reported a further modest rise in input prices, while goods producers signalled a marked reduction in their input costs. Furthermore, the sharp decline in manufacturers’ cost burdens led input prices at the composite level to fall for the twelfth successive month and at a moderate rate.
Average prices charged by services companies increased modestly for the second successive month in August. In contrast, factory gate charges set by manufacturing companies declined at the sharpest rate since January.
National survey data signalled that only one nation, Germany, saw improved rates of expansion for both production and new orders. This was underpinned by the fastest expansion of new export business in one-and-a-half years and the steepest job creation since January 2012.
