China Manufacturing Activity Gauge Adds to Tentative Signs of Recovery
The reading was in line with a competing official gauge
A private gauge of China’s manufacturing activity signaled that the sector returned to growth in October, in a potential sign that Beijing’s more aggressive efforts to boost the economy are having an effect.
The Caixin manufacturing purchasing managers index rose to 50.3 in October from 49.3 in September, according to data released by Caixin Media Co. and S&P Global on Friday.
A reading below 50 suggests that activity is shrinking and one above indicates that it is expanding.
The reading was in line with an official gauge on Thursday that also signaled a pickup in October, ending a five-month run in contractionary territory. A separate official index for China’s construction and service activity also returned to expansion lastmonth.
“The surveys point to an improvement in October, with an acceleration in manufacturing and services activity more than offsetting a further slowdown in construction,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
The hard data show that manufacturing output has been growing rapidly in recent months and the latest PMIs hint at a further pickup in October, he said in a note.
Since late September, authorities have unleashed a torrent of measures aimed at restoring growth and confidence in the economy. The unprecedented effort has involved policy rate cuts, mortgage relief, home buying incentives, and massive liquidity injections for the financial system.
Policymakers have pledged more support in the form of a fiscal package set to include trillions of yuan of extra debt. The fiscal stimulus is expected to be approved next week at meeting of China’s top legislative body.
Friday’s PMI data indicated that supply and demand in China’s sprawling manufacturing sector both grew in October. A subindex measuring output notched a 12th straight month of expansion, Caixin said. Another bright spot was the barometer for total new orders, which returned to positive territory and reached its highest level since June, Caixin said.
External demand remained weak, however, with the gauge for new export orders languishing in contractionary territory for a third month, it said. Lukewarm appetite for Chinese products overseas reflected sluggish global economic conditions, Caixin said.
Another weak spot was employment, which continued to fall as businesses remained cautious about hiring due to uncertainty about the outlook, the data showed. The gauge for employment fell to its lowest since May 2023, reflecting widespread job cuts among companies that produce investment goods, according to Caixin.
Overall, the survey data suggests that market demand stabilized and optimism improved, said Wang Zhe, senior economist at Caixin Insight Group. That suggests early signs that the series of policies officials have rolled is having an impact, Wang said.
“However, the labor market remains under pressure, and price levels are still subdued,” the economist said.
The effectiveness of policies in improving domestic demand, employment and people’s livelihoods merits close monitoring, Wang said.
Looking ahead, Wang said achieving China’s 2024 economic growth target of around 5% will depend on engineering sustained recovery in consumer demand.
“That means policy efforts should focus on increasing household disposable income more effectively,” Wang said.