China's PMI data showed a continuation of the trend we have seen all year: Factory output is sluggish, service growth is strong. On balance, the PMI numbers point to an economy that is stable but still weak. Economic indictors in June showed that while we are seeing broad improvements, some large domestic industries such as steel, cement, mining, and automobile production remain weak. The PMIs hint at continued weakness into July. External demand has also been challenged by the dramatic appreciation of the yuan versus key trading partners.
Services and consumption continue to outpace factory output.
The official manufacturing PMI registered at 50, right on top of the threshold between contraction and expansion. The components also pointed to continuing weakness.
The service PMI continues to improve, rising to 53.9, one of the highest readings of the year.
Things to note in the details:
- Historically, the PMI number falls from June to July. The average decline for the last ten years has been -0.70.
- Both service and manufacturing PMIs reported weaker new orders. New orders for the manufacturing PMI fell below the 50 mark to 49.9. The service PMI new orders number also declined, running modestly above the contraction threshold at 50.1.
- Large enterprises fared much better than small firms, with PMIs coming in at 50.6 and 46.9 respectively.
- Beijing's primary goal of maintaining stable employment remains at risk. The employment PMI number, which has been under 50 every month since May 2012, remains weak at 48. The number was as low as 47.8 early in the year.
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