The overall health of China’s manufacturing sector continued to deteriorate in February. The final reading of the HSBC purchasing managers index (PMI) came in lower today raising the risks of further downside to China’s massive economy.
The February PMI, already in contraction area, fell further to 48.5. This was down from January’s 49.5 and is now at its lowest level in seven months. Any reading below 50 indicates contraction. We are seeing a weakness in manufacturing growth. There is a clear sign the risk to the GDP are moving to the downside. This will lead to some fine tuning of policy form the People’s Bank (PBOC) and policy makers over the next few quarters.
We saw firms cutting staffing levels in February. This staff reduction was at its fastest pace in nearly five years thanks to lower output levels and few new orders. Input costs and output charges also declined sharply. They fell at their fastest rates in eight months. Muted demand enables firms to negotiate discounts on production materials.
Official PMI also Falls
Beijing released their official PMI over the weekend and this edged lower as well. We are now at an eight month low at 50.2 in February. This is slightly lower than January’s 50.5 reading and ahead of analyst expectations for a reading of 50.1.
These numbers are distorted by the recent Lunar New Year holiday which began at he end of January. We need to take into account the positives coming out of Beijing like the anti-corruption push, focus on pollution. Politicians are focused elsewhere right now as there are more important concerns.
Meanwhile, out of the United States, consumer sentiment rose in February despite harsh weather conditions. Consumer sentiment from the Thomson Reuters survey rose to 81.6. This was above the 81.3 expected number and higher than the number seen in January. This is a good sign as consumers are assessing, correctly, that weather is playing a factor in the recent string of softer data being seen. They continue to remain resilient even though they are getting higher utility bills and minimum gains in employment and salary.