China Manufacturing Shows Further Slowdown in November (FXI)

November data signaled a further loss of momentum in China’s manufacturing economy, with output declining for the first time since May, albeit marginally. Meanwhile, total new orders increased for the sixth month in a row, though the rate of growth was only modest. Data suggested that softer client demand from abroad had partly dampened overall growth of new work, with new export orders expanding at the slowest rate in five months. Meanwhile, average input costs declined sharply, which contributed to a solid reduction of output charges.

After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted the no-change mark of 50.0 in November, unchanged from the earlier flash reading, and signaled that operating conditions were unchanged from the previous month. Furthermore, it was the lowest index reading since May, and contrasted with improvements in each of the prior five months.

*** Notably, the People's Bank of China (PBOC) reported that the index fell to 50.3 last month. Consensus estimates were looking for a reading of 50.5.

The decline in the headline index was partly driven by a renewed fall in manufacturing production in November. This was the first time that output had declined in six months, though the rate of contraction was only slight. Anecdotal evidence suggested that subdued market conditions and relatively muted client demand led firms to cut production in November. Meanwhile, total new business increased at a modest pace that was little changed from October. However, November data indicated that foreign demand continued to soften, with the latest expansion of new export business the slowest
since June.

Manufacturing employment in China continued to decline in November. The rate of job shedding was similar to that recorded in October and moderate overall. Lower output and reduced staffing levels contributed to an increased amount of backlogged work in November.

That said, the rate of accumulation eased since October. Purchasing activity was unchanged in November, thereby ending a six-month sequence of growth. Manufacturers in China meanwhile decreased their inventories of both pre- and post-production goods in November, with a number of companies attributing lower stocks to reduced production.

Average input costs fell for the fourth month in a row in November and at a sharp rate. Average prices charged meanwhile declined solidly over the month.

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