China manufacturing PMI misses in April

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The first set of Chinese economic data for April has just been released, and it’s come in below forecast.

The government’s manufacturing purchasing managers’ index (PMI) fell by 0.1 points to 50.1, missing expectations for an increase to 50.4.

The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

At 50.1, that means activity levels across the sector were almost unchanged from March.

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By survey component, production came in at 52.2, down from 52.3 in March, while the subindex measuring employment fell to 47.4 from 48.2, indicating an acceleration in job losses.

New orders and new export orders — lead indicators for internal and external demand — weakened to 51.0 and 50.1 respectively. 

Order backlogs continued to decline, falling to 44.8, while expectations for activity weakened fractionally to 60.3, still well above the 44.4 reading seen at the start of the year.

Mirroring the enormous increase seen in some commodity markets, the gauge measuring raw material prices surged to 57.6 from 55.3. In November last year it was languishing as low as 41.1.

As was the case with the manufacturing PMI report, the separate non-manufacturing PMI — also released by the government — came in at 53.5 in April, down from 53.8 seen in March.

Although well above the 50 level separating expansion from contraction, a trend seen since the survey began in 2007, growth across China’s services sector has been on a decelerating trend since mid-2009.

While it doesn’t receive the same attention as the manufacturing PMI report, as a measure of the largest and faster growing component of the Chinese economy, expect this reading to become more influential in the year ahead.

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Although both PMI readings came in above 50, continuing the trend seen in March, the loss of momentum raises questions over the strength of the economic recovery seen in recent months.

On the wave of a huge increase in credit growth and state-backed infrastructure investment, operating conditions across China’s industrial and construction sectors improved markedly in recent months, spurring on massive price gains in bulk commodity prices and helping to improve sentiment towards the broader economic outlook.

While there is a raft of economic data for April still to come — including industrial output, asset investment and new bank lending in two weeks’ time — the disappointing PMI reports as a lead indicator for economic activity casts doubt on the sustainability of the economic recovery that only truly began in March.

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