China's manufacturing sector continues to splutter
Reuters/StringerPeople look on as a car is stuck after falling into a stairs of an underpass, in Fuzhou, Fujian province, China.
Like the government’s official reading before it, the Caixin-Markit China manufacturing purchasing manager’s index (PMI) for April has come in below expectations, casting further doubt on the sustainability of the industrial sector rebound seen in March.
The PMI printed at 49.4 for the month, missing economist forecasts for an increase to 49.9. It was also below the 49.7 level of March.
The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.
At 49.1 in April, it signals a mild contraction in activity levels. Not terrible, but not exactly great either.
The Caixin-Markit survey differs from the government’s official PMI gauge given it focuses on smaller Chinese manufacturers from the private sector.Caixin/Markit
According to Markit, output was little-changed as total new orders stagnated and new export work fell for the fifth month in a row, signaling continued weakness in international demand.
It also noted that “relatively weak market conditions and muted client demand contributed to a further solid decline in staff numbers”.
In what should come as no surprise given the surge in bulk and base commodity prices in recent months, inflationary pressures intensified during the month.
Input costs rose by the fastest pace since January 2013 while output prices jumped by the most seen since October 2011.
No threat of deflation in the industrial sector based on those figures, at least in the short term.
He Fan, chief economist at Caixin Insight Group, suggests that the decline in April indicated that the economy “lacks a solid foundation”.
“All of the index’s categories indicated conditions worsened month-on-month, with output slipping back below the 50-point neutral level.”
“The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn.”
Whether due to the data miss or other factors, Chinese commodity futures sit deep in the red in early trade on Tuesday.
Rebar and iron ore futures are off by close to 4%, outpacing a 0.7% decline in coking coal.
Chinese stocks, in comparison, have brushed off the news, trading up by around 0.5% after 45 minutes of trade.
Read the original article on Business Insider Australia. Copyright 2016. Follow Business Insider Australia on Twitter.
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