Flash China Manufacturing PMI (Dec): Contraction slowed

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The HSBC Flash Manufacturing PMI for China rebounded to 49.0 from 47.7 in November, indicating that the contraction in the manufacturing sector has eased significantly. With new orders contracting at a slower rate and new export orders expanding at a slower rate it means domestic demand in China has probably stabilized at the lower levels. However, the manufacturing sector is still flooded with excessive stocks, resulting in manufacturers cutting back on stocks of purchases and buying fewer stocks.

HSBC China Flash Manufacturing PMI™: Summary for December 2011

PMIContraction, slower rate
OutputContraction, slower rate
New OrdersContraction, slower rate
New Export OrdersExpansion, slower rate
EmploymentContraction, change of direction
Backlogs of WorkContraction, change of direction
Output PricesDecline, slower rate
Input PricesDecline, slower rate
Stocks of PurchasesContraction, change of direction
Stocks of Finished GoodsExpansion, change of direction
Quantity of PurchasesContraction, slower rate
Suppliers’ Delivery TimesLengthening, faster rate

Source: Markit.

The HSBC survey differs vastly from the official CFLP survey, though. Although it is stated that the CFLP survey is seasonally adjusted, clear seasonal trends are evident in “normal” years where the great financial crisis is excluded. If the historical seasonal trend holds true the CFLP PMI should come in lower in December.

Sources: CFLP; Plexus Asset Management.

The seasonally adjusted CFLP Manufacturing PMI that I calculate tends to follow a trend similar to that of the HSBC survey.

Sources: CFLP; Plexus Asset Management.

If the uptick in the HSBC survey is repeated in my seasonally adjusted PMI it will indicate a rise in the “non-seasonally adjusted” CFLP PMI in December and may in fact rise above 50 from 49.0 in November.

A rise to 50 or somewhat higher will not indicate a significant change in the outlook for China’s economy, which is currently probably growing at a rate closer to 8% on a year-ago basis. There is a real possibility that growth will slow even further to 7% in the first quarter of next year if November’s seasonally adjusted (my calculations) composite CFLP PMI (manufacturing and non-manufacturing) is anything to go by.

Sources: CFLP; I-Net Bridge; Plexus Asset Management.

With growth in input and output prices falling, the stage is set for further monetary stimulation by the PBoC.

The Chinese stock market is currently anticipating a CFLP Manufacturing PMI of 49 in December. A rise to 50 will bring some respite from the current market woes.

Sources: CFLP; I-Net Bridge; Plexus Asset Management.

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