The latest report on China’s PMI has been released, here are the highlights:
• Output stagnates as total new business declines at a faster rate
• Slight upturn in new work from abroad
• Input and output prices both decline at stronger rates
Chinese manufacturers saw a further deterioration in operating conditions in April, with total new orders declining at the strongest pace for a year while production levels stagnated. Data suggested that relatively weak domestic demand was the main driver of reduced new business, as new export work picked up in April (albeit marginally). Consequently, employment in the sector continued to decline, while purchasing activity fell at the quickest rate in 13 months. Meanwhile, deflationary pressures intensified in April, with both input and output costs falling at accelerated rates.
Adjusted for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) remained below the neutral 50.0 value at 48.9 in April, down from 49.6 in March. This signalled a deterioration in the health of the sector for the second successive month. Moreover, the pace of deterioration was the strongest seen in a year.
Total new business placed at Chinese manufacturers declined for the second month in a row in April. Furthermore, the rate of contraction quickened since March to the strongest in a year.
Data suggested that fewer new orders were largely driven by weaker domestic demand, as new export work increased over the month, albeit at a marginal rate. Weaker demand conditions led companies to become more cautious with regard to their production schedules, with firms leaving their output unchanged in April. This contrasted with increased output in the opening three months of the year. Purchasing activity meanwhile declined for the first time since January. Though moderate, the rate of reduction was the quickest since March 2014, with a number of respondents attributing the fall to fewer new orders. Consequently, stocks of inputs declined for the second month in a row and at a faster rate than in March. Inventories of finished goods were also depleted in April, though the rate of reduction was similar to that seen in the previous month and only slight. On the price front, average cost burdens faced by Chinese goods producers fell for the ninth successive month. Moreover, the rate of deflation accelerated to a sharp pace. In line with the trend for input costs, companies cut their selling prices again in April and at a solid rate.
Commenting on the China Manufacturing PMI™ survey, Annabel Fiddes, Economist at Markit said: “China’s manufacturing sector had a weak start to Q2, with total new business declining at the quickest rate in a year while production stagnated. Fewer new orders appeared to stem from weaker domestic demand, as new business from abroad showed tentative signs of improvement. Nonetheless, further job cuts and reduced purchasing activity suggest that the sector may struggle to expand in the near-term. Furthermore, the PMI data indicate that more stimulus measures may be required to ensure the economy doesn’t slow from the 7% annual growth rate seen in Q1.”