China: PMI shows manufacturing continues to drop in June
July 1, 2011
The Purchasing Managers' Index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFPL) moderated further to 50.9 points in June, down from the 52.0 points recorded in the previous month. In addition, the June result fell short of the 51.5 points expected by the market and represented the lowest level since February 2009. A reading above 50% indicates that the manufacturing sector is expanding, while a reading below 50% implies a contraction. The moderation was broad-based as all but one of the sub-indices dropped over the previous month. In particular, sharp declines were seen in the sub-gauges of input prices, which slowed for the fourth consecutive month to 56.7% (January: 69.3%), along with quantity of purchases (51.5%) and production output (53.1%). Moreover, new orders and new export orders also recorded losses, but still remained in expansion mode. Analysts consider that the PMI outturn in June is pointing to both a moderation in economic growth and in inflation, which may lead monetary authorities to postpone further tightening in the near term In addition, manufacturing may moderate further in the coming months due to seasonal effects. However, market analysts do not anticipate a hard landing for the world's second-largest economy, as activity is only gradually slowing.