Edge and Odds

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Edge and Odds

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Month: October 2016

CHINA MANUFACTURING PMI STABLE AT 50.1

Having stagnated in August, Chinese manufacturers signalled little-change to overall
operating conditions during September. On a positive note, output and total new orders
continued to expand, albeit marginally, while firms raised their purchasing activity for the third
month in a row. However, cost-cutting initiatives contributed to a further marked reduction in
employment. As a result, companies signalled a sustained squeeze on operating capacity as
highlighted by a further increase in the amount of outstanding business. Inflationary pressures
appeared to intensify during September, with both input costs and output charges rising at
quicker rates than in August.

The seasonally adjusted Purchasing Managers’ Index™ (PMI™) rose only slightly from the no-change mark of 50.0 in August to 50.1 in September. Although this signalled only a fractional improvement in the health of the sector, it was only the second time the headline index had posted in
positive territory since February 2015.

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Chinese manufacturers continued to signal growth in new work during September. The rate of expansion remained marginal, however, despite quickening slightly from the previous month. Encouragingly, new business from abroad was broadly stable in September, which
ended a nine-month sequence of reduction. While some firms mentioned that underlying client demand had improved, others mentioned that subdued market conditions had weighed on overall growth in new orders. As a result, companies took a more cautious approach to production, as highlighted by the slowest increase in output for three months.

Manufacturing employment in China continued its downward trend in September. Though the rate of job shedding weakened to its slowest in nine months, it remained marked overall. According to respondents, cost-cutting policies and efforts to boost efficiency led companies to cut
their headcounts. However, lower workforce numbers and growth in new work added further to pressure on operating capacity. This was highlighted by sustained growth in backlogs of work, with the rate of accumulation the second-fastest since December 2014.

Purchasing activity increased in September, though the rate of growth was little-changed from August and modest overall. Consequently, stocks of purchased items rose slightly over the month. At the same time, relatively muted growth in new work contributed to a further accumulation of inventories of finished goods.

Stock shortages and adverse weather conditions contributed to a slight deterioration in vendor performance in September, after it was broadly stable in August.

Average cost burdens rose for the third month in a row during September and at a solid pace. As part of attempts to pass on higher input costs to clients, manufacturers raised their factory gate charges at a quicker pace than in the previous month.

THE OFFICIAL PMI

  • Manufacturing purchasing managers index remained at 50.4 in September
  • Non-manufacturing PMI rose to 53.7 from 53.5 in August
  • New export orders rose to 50.1, signaling the first expansion since April
  • Manufacturing employment continued to edge up but still indicated deterioration, rising to 48.6 from 48.4
  • Large enterprises rose to 52.6 while the reading for small companies retreated to 46.1
  • The foundation of manufacturing growth is still weak as companies face difficulties with operations and capacity cuts, the NBS said in a statement released with the data

The Bloomberg Intelligence China gross domestic product tracker rose to 7.16% in August.

JAPAN MANUFACTURING PMI EDGES UP TO 50.4

Latest survey data signalled a slight improvement in operating conditions at Japanese manufacturers. Production rose for the second consecutive month, while total new orders declined at the weakest rate in the current eight-month sequence of contraction. International demand also increased for the first time since the start of 2016.

As a result, goods producers took on additional workers, albeit at a marginal pace. Manufacturers also benefited from lower cost burdens as input prices declined for the ninth month running.

The headline PMI posted at 50.4 in September, up from 49.5 in August and signalling a modest improvement in manufacturing conditions. Moreover, the latest reading was the highest since January and broadly in line with the long-run average (50.6).

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Supporting the overall improvement in the manufacturing sector was an increase in production for the second month running. However, the rate of expansion was only slight, as 65% of companies recorded no change in output compared to August. Of the three market groups surveyed, both consumer and intermediate goods producers recorded an expansion.

Meanwhile, new orders declined at the weakest pace in the current eight-month period of contraction. Data suggested that the fall in total new orders was mainly a result of weak domestic demand as new exports orders rose for the first time since January.

Firms linked higher international demand to greater trade volumes with China, Taiwan and Europe. Both consumer and intermediate goods producers registered an expansion, with the latter noting the sharper increase.

Due to an increase in production, firms were more optimistic towards taking on additional workers, with the rate of job creation picking up slightly. All three market groups noted an expansion in payroll numbers. Meanwhile, input buying declined, albeit marginally.

Finally, lower imported raw material prices meant cost burdens were reduced further. This enabled manufacturers to lower their charges for the tenth consecutive month. Panellists also mentioned greater competition and pressure from clients as factors behind the fall in selling prices.

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