The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) decelerated further in February, contracting for the second straight month. The index declined from 49.5 in January to 48.3 in February, its lowest level since June. Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released on March 3.
This data suggests that overall manufacturing activity remains soft in China. Hongbin Qu, HSBC’s China Chief Economist and the Co-Head of Asian Economic Research, suggested that “Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year.”
Unlike in January, all of the key indicators were in contraction territory. This included the index for output, which fell from 51.3 to 49.2. As such, after expanding for six consecutive months, manufacturing production in China turned negative. Meanwhile, new orders (down from 49.8 to 48.1), exports (up from 49.0 to 49.3), employment (down from 47.8 to 46.9), and finished goods inventories (down from 51.3 to 49.7) were all contracting, as well.
This report suggests that the easing that we saw in Chinese industrial production at the end of 2013 has continued into 2014. Industrial output decreased from a year-over-year pace of 10.3 percent in October to 10.0 percent in November to 9.7 percent in December. At the same time, we should caution that China continues to grow quite steadily, as witnessed by the above numbers but also by the fact that real GDP increased 7.7 percent in the fourth quarter. This indicates that the Chinese economy continues to grow solidly, even if it is slower than the double-digit rates that some had been accustomed to a few years ago.
In contrast to China, the Markit Flash U.S. Manufacturing PMI rose sharply, up from 53.7 in January to 56.7 in February. Given the fact that several other economic indicators have shown negative impacts due to weather, the jump in sentiment in Markit’s survey was a bit of a surprise. Indeed, the pace of growth for new orders (up from 53.9 to 58.8) and output (up from 53.5 to 57.2) were both up significantly. That was the highest level for sales growth since May 2010, a hopeful sign that some of the momentum that we saw in the U.S. manufacturing sector in the second half of last year might be flowing over into 2014.
The expansion was mainly due to domestic factors, but export sales also expanded for the month, albeit with less gusto (up from 48.9 to 50.9). Inventory stockpiles declined at a slower rate (up from 45.0 to 45.7). Hiring also picked up in February (up from 53.2 to 54.0), growing modestly. According to Markit, the increase in employment was the result of “greater production requirements, confidence in the economic outlook and, in some cases, pressures on operating capacity.”
Meanwhile, the Markit Flash Eurozone Manufacturing PMI declined from 54.0 to 53.0. Despite the slight easing in activity, this was the eighth consecutive month of expansion for the Eurozone, which continues to be welcome news for a continent still grappling with the effects of its deep two-year recession. Nonetheless, the pace of growth decelerated across-the-board, including new orders (down from 55.4 to 54.1), output (down from 56.7 to 55.5), exports (down from 55.2 to 54.7), and employment (down from 50.7 to 50.4).
German manufacturing activity followed the Eurozone trend (down from 56.5 to 54.7), with sales and production growth off marginally in February. One bit of good news, however, was that French manufacturers reported positive growth for the first time since February 2012 (up from 48.8 to 50.5). Yet, while output was higher in France (up from 48.2 to 50.5), new orders remained quite weak (down from 47.9 to 46.6).
Chad Moutray is the chief economist, National Association of Manufacturers.
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