PMI pickup cuts odds for policy easing

HSBC survey confirms expansion in mainland manufacturing, but data shows weakness in US

PUBLISHED : Tuesday, 04 December, 2012, 12:00am
UPDATED : Tuesday, 04 December, 2012, 4:51am

The mainland's manufacturing sector is picking up, reducing the odds for further policy easing in the near term, but economists say a recovery might be uneven.

The HSBC Purchasing Managers' Index rose to 50.5 in November, up from 49.5 in October, showing the first expansion in 13 months, according to a report released by HSBC and Markit yesterday. A reading above 50 indicates expansion, while one below it shows contraction.

In the US, however, manufacturing unexpectedly contracted last month, falling to its lowest in over three years. The Institute for Supply Management's index of national factory activity fell to 49.5 from 51.7 in October.

On the mainland, manufacturing output accelerated as new export orders rose for the first time since April due to stronger demand in Europe and the US, the report said.

But economists warned about weakness at smaller firms and a worsening job situation, while big players benefited from Beijing's quicker approval of infrastructure projects since summer.

The official PMI released on Saturday by the National Bureau of Statistics also rose - to 50.6 from 50.2, the highest since April.

Yesterday's PMI report "confirms that the Chinese economy continues to recover gradually", HSBC chief economist of China Qu Hongbin said. "We expect gross domestic product growth to rebound modestly to around 8 per cent in the fourth quarter as easing measures continue to filter through."

Morgan Stanley expects authorities will "likely find the need of further policy easing less urgent".

The job market has yet to recover, however. The employment index in the HSBC report fell for the ninth consecutive month, while a similar gauge in the official data dropped to a 10-month low.

According to Barclays Capital, "the recovery is still not on a solid footing and remains uneven". The expansion was mainly driven by Beijing-backed infrastructure investment while smaller companies that provide most jobs still lagged behind, it said.

The bureau's data showed the PMIs for small and medium-sized enterprises remained below the 50 threshold. At the same time, the import index dropped slightly, to 48.5. Mizuho Securities expects export growth to have weakened to only 4 per cent last month from a year earlier.