Chinese Manufacturing Sector Begins Fourth Quarter On Solid Footing
IHS Markit | Nov 03, 2016 05:37
After showing signs of stabilisation for the last three months, China’s manufacturing sector pulled out of the slow lane in October, driven by domestic demand. Growth of production and orders accelerated during the month, with output expanding at the fastest rate in over five years. Inflationary pressures also picked up.
The Caixin China Manufacturing PMI, a key barometer of the health of the goods-producing sector compiled by Markit, rose for the second successive month, up from 50.1 in September to a 27-month high of 51.2 in October. Though moderate, the considerably stronger upturn in October pointed towards the manufacturing economy gaining momentum at the start of the fourth quarter.
h2 Domestic-led upturn/h2Production expanded especially sharply, growing at the fastest rate since March 2011, helped by a further rise in new orders. A renewed decline in export sales, albeit marginal, suggested that much of the uplift was driven by a welcome strengthening of domestic demand.
Part of this further improvement in manufacturing conditions therefore appears to have been due to the government’s efforts to stimulate the economy through fiscal measures. Other encouraging leading signals were busier supply chains and increased purchasing activity.
h3 Domestic demand drives manufacturing growth/h3A further key feature of the October survey was a revival of inflationary pressures. Average prices charged by producers showed the largest monthly rise since February 2011.
However, in many cases, price hikes were driven by the need to pass higher costs on to customers: input prices jumped to the greatest extent since September 2011.
Rising cost burdens were linked to higher prices for raw materials such as oil, steel, copper and coal, according to survey respondents, which in many cases simply appeared to reflect higher global prices. The Suppliers’ Delivery Times Index, a useful barometer of the extent to which a demand and supply imbalance is driving prices higher, pointed to few signs of prices being raised due to demand outstripping supply in China.
h3 Inflation and supply chain constraints/h3
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Job cuts in the manufacturing sector consequently continued to be widely reported despite strong improvements in output and new orders, as companies downsized and sought cost savings. On a brighter note, there were nascent signs of stabilisation in the manufacturing workforce as the rate of decrease in employment slowed to the weakest since May 2015.
h3 Job cuts persist despite expanding output volumes/h3Disclaimer: The intellectual property rights to these data provided herein are owned by or licensed to Markit Economics Limited. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without Markit’s prior consent. Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers' Index™ and PMI™ are either registered trademarks of Markit Economics Limited or licensed to Markit Economics Limited. Markit is a registered trade mark of Markit Group Limited.
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