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Chinese manufacturing PMI slips to eight-month low in July – Caixin China General Manufacturing

Operating conditions across China’s manufacturing sector improved at the slowest pace for eight months in July, with output and new business both expanding at softer rates. Notably, new export orders fell at the steepest pace for 25 months. A further reduction in staffing levels meanwhile contributed to a sustained increase in backlogs of work. On the price front, the rate of input cost inflation weakened since June, but remained elevated, while output charges rose only modestly. Optimism towards the year ahead remained relatively subdued amid concerns surrounding tough market conditions, strict environmental policies and the potential impact of the US-China trade war. The headline seasonally adjusted Purchasing Managers Index, a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy, fell from 51.0 in June to 50.8 in July. Although still above the neutral 50.0 mark, the latest figure highlighted the slowest improvement in the health of the sector since November 2017.

Chinese manufacturers continued to increase production during July. However, the rate of expansion softened since June and was moderate overall.

At the same time, new order growth weakened for the second month running and was slower than the historical series trend. Data a suggested that reduced external demand contributed to the slowdown, as exports fell for the fourth month in a row. Notably, the rate at which new export business declined was the quickest recorded for just over two years amid reports of subdued market conditions.

Employment across China’s manufacturing sector continued on a downward trend in July, with some companies lowering staff due to company downsizing. That said, the rate of job shedding eased since June. Lower staff numbers and a further rise in new orders led to increased amounts of outstanding business, though the rate of accumulation slipped to the weakest for five months.

Buying activity among Chinese goods producers increased again at the start of the third quarter. However, the pace of expansion was the weakest recorded in just over a year. Stocks of inputs were meanwhile little-changed from the previous month, while inventories of finished items declined for the third month in a row.
The time taken for inputs to be delivered to manufacturing companies in China continued to lengthen in July. However, the degree to which vendor performance deteriorated was the least marked since February.

Average input costs rose solidly in July, despite the rate of inflation softening since June. Companies widely linked higher cost burdens to greater raw material prices. Meanwhile, factory gate prices increased at only a modest pace that was the slowest recorded for three months.

Companies generally anticipate output to increase over the next year. However, the level of positive sentiment held close to June’s six- month low and remained weak in the context of historical data.

Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said “The Caixin China General Manufacturing PMI slipped to 50.8 in July from June. The reading has not been this low since November 2017. The sub-indexes for output and new orders both fell, but remained in expansionary territory, while the employment sub- index picked up despite remaining in contractionary territory. New export orders shrunk at the fastest pace since June 2016, indicating the export market continued to deteriorate. The sub-indexes for output charges and input prices both dropped, but remained in expansionary territory, pointing to easing pressure on prices. The sub-index for future output edged up, reflecting that goods producers were more optimistic that production would grow over the next 12 months. The sub-index for stocks of finished items contracted at a steeper rate in July, while the sub-index for stocks of purchased items started expanding again — a positive sign that companies had reduced their stocks of finished products and replenished stocks of purchases. The sub-index for suppliers’ delivery times rose, even though it failed to make it into expansionary territory, which might imply an improved capital turnover among manufacturers. In general, the survey signaled a weakening manufacturing trend as a grim export market dragged on the sector’s performance. The positive drivers were the increase in stocks of purchases and easing pressure on capital turnover.”
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