Markit: Chinese Manufacturing Activity Shrinks in Contrast to Improvements in U.S., Europe

By June 20, 2013Economy

Markit said that manufacturing activity has declined for two consecutive months in China, a sign that their economy is slowing. The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) declined from 50.5 in April to 49.6 in May to 48.3 in June. Chinese manufacturers had reported modest-but-positive growth in output and sales from November through April, but since then, there have been weaknesses. Contracting levels of new orders and exports led the descent in June’s overall index, with exports, in particular, off sharply.

In light of weaker sales, many of the subcomponents of the Chinese PMI were also contracting, with index readings below 50. This included output (down from 51.0 to 48.8), employment (down from 49.0 to 47.9), and prices for finished goods (up from 42.8 to 42.9).

Hongbin Qu, HSBC’s China Chief Economist and the Co-Head of its Asian Economic Research, commented on these poor findings.  He said, “Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures. Beijing prefers to use reforms rather than stimulus to sustain growth. While reforms can boost long-term growth prospects, they will have a limited impact in the short term. As such we expect slightly weaker growth in 2Q.”

In contrast to the Chinese data, there were improvements to note in the Flash data for the U.S. and Europe, even as the Eurozone remains in contraction territory. The Markit Flash Eurozone PMI rose from 47.8 in May to 48.7 in June. The bad news is that this was the 23rd consecutive month of contraction for the Eurozone, but June’s figure was the highest PMI value since February 2012, a bit of positive progress. New orders, output, and employment were all shrinking at a slower rate in June. The press report noted diverging paths, with German manufacturing output beginning to grow again while France and others continue to experience weaknesses (albeit somewhat eased from last month).

Meanwhile, U.S. manufacturers will need stronger global growth to be able to lessen some of the current anxieties in the marketplace. The Markit Flash U.S. Manufacturing PMI increased from 51.9 in May to 52.2 in June. While the Markit press release refers to a “solid rise in manufacturing output in June,” these data suggest modest growth in manufacturing activity overall. The output index rose from 52.7 to 53.9, but growth in other measures point to some continued challenges. For instance, the index for new exports decreased from 49.8 to 47.5, indicating that foreign sales are shrinking, and the employment measure dropped from 52.6 to 50.4, signifying that hiring has stalled.

With that said, these findings do indicate that the U.S. economy is progressing faster than China or Europe right now, based on Markit PMI data. While that is a compliment for the U.S., it also presents a challenge, particularly as manufacturers seek to increase their export opportunities.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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