On June 1, 2015, HSBC published its report on China’s Manufacturing PMI for the month of May. The index is posted at 49.2, slightly up from April’s 48.9, but it still indicates a contracting manufacturing sector. (Source: HSBC/Markit, June 1, 2015.)
The Purchasing Managers’ Index, or PMI, is an indicator of the economic health of the manufacturing sector. HSBC’s index is constructed by surveying about 430 purchasing managers regarding business conditions in new orders, production, employment, prices, supplier deliveries, and inventories. A PMI of above 50 indicates an expansion of the manufacturing sector; whereas, a PMI of below 50 signifies a contraction.
With the PMI at 49.2, May is the third consecutive month where the index has posted a below-50 reading.
Output, New Orders & Employment All Down
Manufacturing output fell in May. Although the decline is only slight, it is the first time this sub-index reported contraction this year.
New businesses decreased as well, and it has been falling for three consecutive months. The decline was mainly due to weaker foreign demand, the report says.
Weak foreign demand is also pulling down China’s exports. In May, new export business experienced the sharpest drop since June 2013
Manufacturing employment declined in May. The report credits the decrease to lower production requirements and the non-replacement of voluntary leavers. Note that this is the 19th consecutive month in which employment declined.
Deflationary pressure is also present, as average input costs fell in May. However, the fall was at the weakest rate in nine months. Due to the decline in input prices, prices charged by producers also fell.
“The headline PMI signaled a further deterioration in the health of China’s manufacturing sector in May,” says Annabel Fiddes, an economist at Markit. “The latest survey data therefore suggest that more stimulus measures may be required to help boost domestic demand and recover some growth momentum.”