January data signalled a deterioration of operating conditions in China’s manufacturing sector for the first time in six months. The deterioration of the headline PMI largely reflected weaker expansions of both output and new business over the month. Firms also cut their staffing levels at the quickest pace since March 2009.
On the price front, average production costs declined at a marked rate, while firms lowered their output charges for the second successive month.
After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index (PMI) posted at 49.5 in January, down fractionally from the earlier flash reading of 49.6, and down from 50.5 in December. This signalled the first deterioration of operating conditions in China’s manufacturing sector since July.
Production levels continued to increase in January, extending the current sequence of expansion to six months. However, the rate of growth eased to a marginal pace. While greater volumes of new work boosted production at some firms, others reduced their output amid reports of relatively subdued client demand that stemmed from fragile economic conditions.
Consequently, total new business was relatively unchanged from the previous month, following a five-month sequence of growth. Meanwhile, new export orders declined for the second month running in January, with surveyed firms mentioning weaker demand in a number of key export markets.
Employment levels at Chinese manufacturers fell for the third consecutive month in January. Moreover, it was the quickest reduction of payroll numbers since March 2009. Job shedding was generally attributed by panellists to the non-replacement of voluntary leavers as well as reduced output requirements. Despite the marked reduction of headcounts, the level of unfinished business at goods producers rose only fractionally over the month.
Purchasing activity increased for the sixth successive month. That said, the degree to which input buying increased eased to a marginal pace that was the weakest since September. Stocks of purchases and finished goods also rose slightly in January, and for the first time in three months in both cases. A number of panellists linked higher inventories to slower output growth and weaker-than-expected client demand.
Production costs declined for the first time since July 2013 in January. Moreover, the rate of input price deflation was marked overall, amid reports of lower raw material costs.
Reduced cost burdens were passed on to clients in the form of lower output charges in January and marked the second consecutive month of discounting.