The official manufacturing index came in at 50.4 (53.3 previous, 52 expected), while the private HSBC Markit index came in at 48.4 (49.3 previous). The main driver of the drop in the official index was a 4.3 point drop in the production index, and a 4.7 point drop in the new orders index; the raw materials inventory index also shed 3.4 points to 45.1. The only positive point really was the 10 point drop in the prices index to 44.8, which points to lower inflation - a necessary precondition for any monetary policy easing.
However manufacturing is only one side of the economy. The Non-manufacturing PMI index came in at 55.2 (56.1 previously). New orders slipped 0.2 to 52.5, while the intermediate inputs price index fell 4.3 to 53.6, interestingly it looks like some of the input price drop was passed onto consumers with the prices charged index falling 1.8 to 48.5, which furthers the case for falling inflation. The other point to note is that the absolute level of the non-manufacturing PMI shows relative resilience of the sector; which lines up nicely with the Chinese government's plans for rebalancing growth and looking for more quality growth.
So what's the overall takeaway? Manufacturing activity is slowing, non-manufacturing activity is expanding; but at a slower pace. Input price and consumer price inflation is likely continuing to ease, and house prices are under continued pressure from government controls.
At this point this is all consistent with a soft landing. While things are slower than during the investment boom of the mid 2000's and the post-GFC stimulus, the Chinese economy is looking relatively healthy, and will continue to expand. The best part of these results is the apparent moderation of inflation pressures. This only increases the government's options should activity slow further. And if the past few years have taught us anything, it's that the Chinese authorities are more than capable of responding to a major downturn in activity.
by Econ Grapher
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China Update - Housing Market and Manufacturing