China: May PMI Confirms A Mild Slowdown1 June, 2011, 12:01. Posted by Zarathustra
Tags: Economy, PMI
China’s official manufacturing purchasing managers index (PMI) in May 2011 continued to show signs of slowdown. The official PMI figure drop to 52.0 in May from 52.9 in April, higher than the consensus of 51.6. The May figure is the lowest reading in nine months.
Although it shows a continued trend of slowdown, looking at some of the sub-indices would give you a bit of a relief. Input price sub-index, for instance, dropped significantly from 66.2 to 60.3, which indicates inflationary pressure, albeit still high, is easing somewhat. Inventory level seems to be dropping as well. Stock of raw materials have dropped to 49.5 in May and stock of finished goods dropped to 50, so the inventory build-up appears to be slowing. On a more worrisome note, new orders dropped from 53.8 to 52.1, dropping faster than the headline.
Some pointed out that the May PMI has historically been lower due to seasonality. However, as Dong Tao of Credit Suisse just helpfully pointed out, the May 2011 figure is the weakest May reading in the entire time series of the PMI, even though the seasonal drop this year is not very pronounced. He attributed this to the lack of acceleration of activities in the previous two months, such that the reading this May appears to be more stable.
Source: China Federation of Logistics & Purchasing
The May reading from the HSBC China Manufacturing PMI also shows a slowdown, with the headline number dropping from 51.8 in April to 51.6 in May, although dropping less than the flash estimate suggested.
On the whole, as the headline number is still above 50, the manufacturing sector is still growing, albeit at slower pace. This confirms the slowdown of the Chinese economy. Although on the plus side, we will see inflationary pressure easing somewhat. Though it is still a bit early to say whether the economy will face a soft-landing or hard-landing. The activities of the real estate sector will be more crucial is making that judgment, in my view.