China: PMI's disappoint - Westpac

Elliot Clarke, Research Analyst at Westpac, suggests that each year, January and February is a problematic period for Chinese data due to the variable timing of the lunar new year holidays which last for a week and in 2018, this work disruption occurred in the middle of February, weighing on activity in the month.

Key Quotes

“For the manufacturing sector, the NBS made clear that they believe the 1ppt decline in the headline PMI in February is at least partly attributable to the lunar holidays. However, if we average January/ February and contrast it to December, we still see a decline of 0.8ppts.”

“The decline in the production series was more substantial, down 2.8ppts since January and 1.9ppts lower than December (if averaged with January).”

“New orders also fell back in the month (–1.6ppts) and are similarly 1.6ppts lower than the December level (if averaged with January).”

“One area where there has been little change is employment. The February level is only 0.4ppts lower than December. Employment growth has been lagging activity for some time. The above pull back in activity points to this continuing.”

“It is possible that some in the services sector received a windfall from the lunar holidays, with more consumers out and about. That said, many business-oriented firms would have had a weaker month.”

“Unsurprisingly, the headline services PMI was broadly unchanged in January/ February versus December.”

“New business was however 0.8ppts lower on average in January/ February. This looks to have been driven by a material reduction in external demand, the export sub-component down 3.5ppts in January/ February.”

“This outcome is consistent with the manufacturing detail, where export orders were reportedly down 2.6ppts in January/ February versus December.”

“Employment in this part of the economy is also little changed since December. As for manufacturing, the services survey indicates that the rate of job creation continues to lag activity.”