Explainer | China’s ‘economic momentum is still weak’: 4 takeaways from August’s manufacturing, services activity data
- Both China’s official manufacturing purchasing managers’ index (PMI) and the Caixin/S&P Global manufacturing PMI rose in August, remaining in expansion
- China’s non-manufacturing PMI and Caixin/S&P Global services PMI also remained in expansion in August, but both gauges fell last month
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1. Downward pressure on factory activity ‘dissipating’
Within the official manufacturing PMI, the new-orders subindex jumped into expansionary territory as it reached 50.2, up from 49.5 a month earlier, while the new-export-orders subindex remained low at 46.7 in August, up slightly from 46.3 in July.
“This appears to reflect an improvement in domestic demand as the new orders component rose and is now above 50. Downward pressure on foreign demand eased as well the export orders component edged up. But it remains under 50 and continues to point to a further drop in exports,” said analysts at Capital Economics.
“The Caixin manufacturing PMI rose by a larger clip compared with the official manufacturing index in August,” added analysts at Capital Economics. “Taken together, the average of the two is consistent with downward pressure on factory activity dissipating last month.
“The big picture is that overall economic momentum remains weak. But policy support is now being ramped up. Assuming this continues, then a modest cyclical rebound is likely.”
2. Softening services sector
China’s non-manufacturing PMI fell from 51.5 in July to 51 in August, after the index moderated for four consecutive months amid the overall economic slowdown.
“Despite the onset of the first summer holiday season following the pandemic, the PMI for the services sector softened,” said analysts at Nomura.
“It appears that the service sector is not being significantly driven by domestic travel, as the summer season continues; consumer spending behaviour may be shifting towards lower-priced products and services in the post-pandemic era.”
The construction subindex, which has been partly affected by the ongoing property crisis, rose to 53.8 in August from 51.2 in July.
The improvement was likely supported by local government-backed projects, as local-government special bonds accelerated noticeably in August following instructions from the Ministry of Finance in late July, added Nomura’s analysts.
[This suggests] the activity in services sector continued to improve, but at a significantly slower pace
“[This suggests] activity in the services sector continued to improve, but at a significantly slower pace,” said analysts at Goldman Sachs. “Surveyed companies indicated that the slowdown in business activity was related to a weaker increase in overall new business.”
3. Composite averages remain in expansion
China’s official composite PMI, including both manufacturing and non-manufacturing activity, rose to 51.3 in August from 51.1 in July.
Caixin/S&P’s composite PMI, meanwhile, edged down from 51.9 in July to 51.7 in August, signalling an expansion of total Chinese business activity for the eighth month in a row.
“The marginal slowdown in the services sector’s supply and demand expansion offset the improvement in manufacturing production and demand,” said Wang Zhe, an economist at Caixin Insight Group.
4. ‘Modest cyclical recovery likely’
Capital Economics said the average of the two manufacturing gauges in August rose to a five-month high and was consistent with factory activity remaining largely unchanged.
But the average of the two services PMIs fell to an eight-month low, they added, which was consistent with a further loss of momentum in the sector.
The PMI surveys suggest economic momentum stabilised in August after months of slowdown
“The PMI surveys suggest economic momentum stabilised in August after months of slowdown. Downward pressure on manufacturing activity appears to have dissipated, while construction activity accelerated,” said analysts at Capital Economics. “These have offset a further softening in services activity.
“Overall economic momentum is still weak, but assuming policymakers continue to step up support, then a modest cyclical recovery is likely.”
