Analysis
China's Factory PMI Fell to 49.3, Its Lowest Since July
China's official manufacturing PMI fell to 49.3 in October from 50.1, below the 50.0 expected and the weakest since July. Services held at 50.0 while input costs kept outrunning factory prices.
China's factories slipped back into contraction in October. The official manufacturing purchasing managers' index from the National Bureau of Statistics fell to 49.3 from 50.1 in September, the statistics bureau said on Saturday, October 31, below the 50.0 that economists had expected and the lowest reading since July. A PMI below 50 means more purchasing managers reported falling activity than rising.
The decline was broad. The production sub-index dropped 1.9 points to 49.8 and new orders fell 1.1 points to 49.4. Size mattered: large manufacturers stayed in expansion at 50.2, down 0.4 points, while medium-sized companies came in at 48.4 and small ones at 47.5. The bright spots were the sectors Beijing has been promoting. The high-tech manufacturing PMI was 51.3 and equipment manufacturing 50.6, and production and new orders in railway, shipbuilding and aerospace equipment and in computer and electronics manufacturing were at 53 or above.
The price gauges tell a second story. The index of purchase prices fell 4 points to 56.8 and the index of factory-gate prices 2.3 points to 51.7. Both are still above 50, so costs and selling prices are still rising, but the gap between them, about five points, means manufacturers are paying more for inputs, oil among them, than they can pass on. With Brent above $110, that squeeze on margins is the part of the report most directly tied to the war in the Middle East.
Huo Lihui, chief statistician at the NBS, attributed the slowdown partly to demand pulled forward ahead of the National Day holiday in early October and to a complex international environment. The survey also has a hopeful line: the expectations sub-index for future production was 53.4. Outside manufacturing the picture was flat. The non-manufacturing PMI eased to 49.7 from 50.2, with services exactly at 50.0, and the composite index, which combines both, fell to 49.7 from 50.7.
Markets had little chance to react, since the data came out on a Saturday. On Friday the iShares China Large-Cap ETF rose 1.2% to $33.08, still below its 50-day average, while US technology shares sank. Monday brings a private-sector manufacturing survey that leans more toward smaller, export-oriented companies, and the first test of whether investors read October as a holiday blip or as the start of a slower fourth quarter. A rebound above 50 in November would support the holiday explanation; a second month below it would put the pressure for stimulus back on Beijing.