China's Manufacturing Output Falls for the First Time Since July 2010

Manufacturing production in China fell during June, as total new order growth continued to moderate. On the inflation front, price pressures cooled noticeably, with both input and output prices rising at only modest rates.


The seasonally adjusted HSBC Purchasing Managers’ Index (PMI) – a composite indicator designed to give a single-figure snapshot of operating conditions in the manufacturing economy – fell to an eleven-month low of 50.1 in June, from 51.6 in May, signalling only a fractional improvement in manufacturing sector operating conditions.


The index averaged its lowest quarterly reading since Q2 2009 in the second quarter.


June data signalled a decline in manufacturing production for the first time since July 2010, although the pace of reduction was only marginal. The index measuring trends in factory output has now fallen in seven of the past eight months since last October’s peak. A drop in production levels in part led to manufacturers reducing their stocks of finished goods, with the rate of depletion quickening to the fastest since November 2010.


June’s survey indicated a further moderation in overall new business growth. The latest increase in new orders was only marginal, and the slowest in the current eleven-month period of growth. Moreover, new export business decreased for the second month running, and at the most marked rate since March 2009. Those survey respondents that recorded a decline in new business from abroad attributed this to subdued global demand.


Employee numbers in the Chinese manufacturing sector fell in June, ending a three-month period of growth. That said, the rate of job shedding was only slight. Where a fall in staffing levels was signalled, this was commonly linked by panellists to lacklustre growth of new business. There were also reports of employee retirements and resignations.


Reflective of lower output requirements, the quantity of inputs acquired by manufacturing firms fell for the first time in twelve months. Consequently, stocks of purchases in the sector decreased for the sixth month in succession, and at a solid rate. Some companies also reported utilising stock holdings in an attempt to mitigate against delays in the supply chain. This was signalled by a further deterioration in average vendor performance during the latest survey period. Nonetheless, the rate of delivery time lengthening was the slowest in three months.


Higher raw material prices continued to push up average costs faced by manufacturers during June. However, the rate of input price inflation moderated sharply to the slowest in eleven months, with the relevant index falling by more than eight points from one month earlier. The rate at which manufacturing firms raised their factory gate charges eased accordingly, and was the slowest in the current elevenmonth period of rising charges.





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