The HSBC Flash China Purchasing Managers’ Index (PMI) rose to its highest level in three months, up from 50.2 in September to 50.4 in October. It was the fifth consecutive monthly expansion in manufacturing activity in China, an improvement from the contracting levels of activity experienced in the first five months of 2014. Yet, despite the headline better headline figure, many of the underlying data points reflect some easing in growth rates for the month. This includes new orders (down from 51.5 to 51.4), exports (down from 54.5 to 52.8) and output (down from 51.3 to 50.7). Hiring continued to decline, but at a slower rate (up from 47.5 to 48.6).
As such, Chinese manufacturers are expanding, but not by as much as we might prefer. This finding is consistent with the deceleration that we have observed in other Chinese data, including real GDP, which slowed from 7.5 percent year-over-year growth in the second quarter to 7.3 percent in the third quarter. The paces of fixed real investment (down from 16.5 percent year-over-year in August to 16.1 percent in September) and retail sales (down from11.9 percent year-over-year to 11.6 percent) also decelerated. On the positive side, industrial production picked up, increasing from the year-over-year rate of 6.9 percent in August to 8.0 percent in September; yet, that remained lower than the 9.0 percent pace of July.
Meanwhile, the Markit Flash Eurozone Manufacturing PMI increased from 50.3 to 50.7. That is good news, as the August figure had been the lowest level since July 2013, when Europe first emerged from its recession. September’s reading was higher largely due to a pickup in output (up from 51.0 to 51.9) and employment (up from 50.1 to 50.6). Still, new orders (unchanged at 49.3) contracted for the second straight month, with the growth rate of exports (down from 51.6 to 50.5) easing. Therefore, it is clear that the Eurozone’s challenges in the manufacturing sector remain a challenge, especially in terms of falling sales. The results also vary by country, with Germany (up from 49.9 to 51.8) improving somewhat while French manufacturers (down 48.4 to 47.6) continue to report weakness.
Closer to home, the Markit Flash U.S. Manufacturing PMI dropped slightly, down from 57.5 to 56.2. The pace of activity was down across-the-board, including new orders (down from 59.8 to 57.1), output (down from 59.6 to 58.0), hiring (down from 56.4 to 56.2) and exports (down from 54.1 to 51.9). While the index for new orders was at its lowest level since January’s 53.9 reading, it is hard to get too worked up over the decline in September for these indicators. After all, demand, production and employment continue to grow at decent rates, and it is clear that manufacturers are reporting higher activity levels than earlier in the year.
Still, we would like to see better results to begin the fourth quarter, particularly for U.S. exports. Given the softness that we see in worldwide markets, however, this weakness should not be a surprise.
Chad Moutray is the chief economist, National Association of Manufacturers.