Chinese manufacturing disappoints – but don't despair
Manufacturing PMI data in China came below market consensus but some analysts say signs of strength are still visible
The official Purchasing Managers Index (PMI) data, released by China's National Bureau of Statistics (NBS) fell to 50.1 in February after seasonal adjustments from January's 50.4, the weakest reading since September last year.
It was below market expectations of 50.2 in a Reuters poll of economists and of 50.5 in a poll of analysts carried out by Bloomberg. A reading above 50 signifies expansion.
New orders fell to 50.1 compared with 51.6 in January and new export orders were down to 47.3 from 48.5.
Output eased to 51.2 from January's 51.3, while employment fell to 47.6 from 47.8.
The HSBC final PMI data showed an even larger drop, to 50.4 in February from January's 52.3, confirming an earlier weak reading of the flash HSBC PMI.
The final February HSBC manufacturing PMI suggests a slower pace of expansion. But China's recovery continues on improving domestic demand conditions and the labour market," said Hongbin Qu, chief economist for China at HSBC in a statement detailing the flash PMI data.
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Economists at Bank of America Merrill Lynch remind investors in a market note that "China's monthly macro data in January and February are significantly distorted by the different timing of the Chinese New Year (CNY) holiday."
"We believe the Chinese economy is still on a cyclical upturn and the market impact for the below-than-consensus PMI figure should be limited," they added.
Both the NBS and the HSBC surveys might be missing "a large amount" of values for "already small sample sizes" of around 500 for the HSBC survey and 3000 for the NBS one, according to the Bank of America Merrill Lynch economists.
"We believe the Chinese economy will remain in a sweet spot in the near term," they said.
They noted that inventories of finished goods dropped to 46.6 in February from 47.4 in January, saying that this could be "largely attributed to the pick-up in final demand over the holiday."
Regarding the contraction of output and employment, they believe it might partially reflect the effect of holidays, with migrant workers returning home for the Chinese New Year.
Societe Generale's China analyst Wei Yao noted that supplier delivery times fell to 48.3 from 50, implying stronger demand, and that the fall in inventories of finished goods to a 25-month low suggested a quickening in sales.
"The bottom line is that the economic recovery is not yet over, although it is not a strong one," Yao said.
"We think the March PMI reports (due on 1 April) should regain the face-value loss in January and February. Before hand, we expect the releases on March 9 of industrial production and fixed asset investment data for January and February combined to be more upbeat than February PMIs as well," she added.
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