China: PMI moderates further in July
August 1, 2011
Manufacturing continued to slow in July on the back of a soft patch in external demand and the ongoing monetary tightening. The Purchasing Managers' Index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFPL) slowed to 50.7 points in July, slightly down from the 50.9 points recorded in the previous month. While the July outturn overshot the 50.2 points expected by the market, it represented the fourth consecutive monthly decline. A reading above 50% indicates that the manufacturing sector is expanding, while a reading below 50% implies a contraction. The moderation was mixed as only 5 out of the 11 sub-indices recorded losses over the previous month. In particular, sharp declines were seen in the sub-gauges of inventories as well as in production output, which accounts for 25% of the total weight slowed for the fourth consecutive month. On the upside, new orders picked up, pointing to resilient domestic demand. In addition, input prices declined to the lowest level in a year, which suggests a moderation in inflationary pressures going forward. With the PMI result of July, analysts consider that economic growth is stabilizing, while at the same time, concerns about a hard landing scenario are gradually waning. In addition, the July outturn has a tendency to be among one of the weakest PMI results, hence a rebound is expected in the months ahead.