China’s manufacturing sector continues to contract this month but at a less severe pace, as the nation’s central government in Beijing fights to reverse a 24-year low in economic growth.

William Ng

January 26, 2015

3 Min Read
China’s Manufacturing Slump Softens While US Growth Erodes Again in January

The month’s preliminary and closely watched purchasing managers index from HSBC and Markit Economics, known as the Flash China Manufacturing PMI, ticked up 0.2 points to 49.8, representing a two-month high. Numbers below 50 indicate contraction and vice versa.

The tracking service showed that China’s manufacturing output returned to expansion territory, at 50.1, also a 0.2-point uptick and a three-month high.

The January flash reading represents feedback on business conditions from about 85% to 90% of 420 mostly small and midsize Chinese manufacturers surveyed by HSBC, which will release its final January data on Feb. 2.

Those companies reported that new orders rose thus far this month, reversing a decline in December bookings. New export orders continued to improve from last month, but at a slower rate. Backlogs of work also are increasing, but manufacturers are continuing to shed employees.

HSBC’s chief economist for China and co-head of Asian economic research, Hongbin Qu, said domestic demand in China improved marginally but remains weak, while external demand remained solid.

China’s gross domestic output expanded 7.4% in 2014, the slowest pace in 24 years, as the country’s housing and property markets slumped and labor market weakened. The central government has been attempting to prop up the domestic economy through stimulus measures. Official data from Beijing showed that industrial output and retail sales improved in December.

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The HSBC reading could suggest that the country’s manufacturing sector may also be improving. The PMI has hovered around 50 in recent months, while showing that sector employment shrank for most of 2014.

Expectations are that the central government will lower the nation’s GDP growth target from 7.5% last year to 7% this year, focused on slower but sustainable expansion.

Meanwhile, Markit Economics reported that US manufacturing this month continues to expand but at the slowest pace in a year. The Markit Flash US Manufacturing PMI eased 0.2 points to 53.7, indicating that business conditions remained positive.

But slower new business growth, now at a one-year low, has dragged down the manufacturing sector. According to Markit, improving conditions in the US continued to boost order levels but export demand remained lackluster. It reported that some respondents attributed slower growth to reduced spending by the oil and gas sector.

Since peaking last August at 57.9, Markit’s US PMI has eroded five straight months. On a more positive note, the sector’s production output picked up slightly from an 11-month low in December and manufacturing payrolls rose. Slightly greater levels of staff hiring were linked to expectations of rising backlogs and improved profitability among US manufacturers.

However, manufacturers remained cautious, with purchasing activity at the least marked pace in 12 months despite input prices declining for the first time in two-and-a-half years as a result of the crash in oil prices. Their own prices charged for their products increased marginally.

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Will Ng is a perfectionist who has been in business journalism for more than 15 years, many of which have been devoted to covering manufacturing, technology, and industry. A writer first, he loves to tell a good story and enjoys reporting on market trends and news.

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