China April PMI Numbers Modestly Lower, but Point to a Rebound in Old Economy Sectors

China’s April PMI numbers modestly declined from March but remained in expansion territory for the second month in a row.  Most PMI numbers fell slightly lower in April after jumping higher in March.  But, large firms, the construction PMI, and expectations subcomponents all point to a property-driven rebound temporarily boosting China's struggling old economy sectors.

As mentioned in previous blog entries, China's main economic story so far in 2016 is a rebounding property market poised to add to the broad economy this year after dragging growth lower for the last two years.  Within the numbers, construction PMI was up 1.4 points to 59.4 in April.  Property is a large chunk of the economy and indirectly has an impact on consumption through both the wealth effect and construction employment.  The renewed property and construction surge while unsustainable in the long-term will likely give a boost to the economy this year.

Here are some other key points in China’s PMI data:

  • New order PMIs for both manufacturing and services were lower in April, 51.0 from 51.2 and 48.7 from 50.8 respectively.
  • Expectations are on the rise.  Expected production and activity PMI came in at 60.3 in April, up from as low as 44.6 in December.
  • Manufacturing PMI for large firms was 51.  Medium-sized firms are also showing expansion at 50.  Small firms had a PMI of 46.9 in April.  That is an indication that large state-affiliated heavy industries are doing better recently while smaller manufacturers are still struggling.
  • Employment PMI in the service sector rose to 49.2, while the manufacturing employment PMI declined to 47.8.  The employment outlook for industry this year will continue to be negative as Beijing forces contraction of overcapacity in large heavy industries, like mining and steelmaking. Layoffs will likely be in the millions over the next few years.  Beijing is banking on new economy sectors to absorb the jobless.
  • Raw materials purchase prices came in at 57.6, almost 10 points higher than last year as commodity demand begins to rise.

Here are the data charts: