October PMIs point to economic stabilization

Manufacturing conditions improved slightly in October.

• That’s according to the October PMI data, released by the stats bureau (NBS) and Caixin on Thursday and Friday, respectively.

A quick refresher: Headline PMI figures measure overall manufacturing conditions. A PMI reading above 50 indicates improvement and below 50 indicates deterioration.

Both PMIs moved into expansionary territory in October, having contracted the previous month.

• The NBS PMI came in at 50.1, up from 49.8.
• The Caixin PMI came in at 50.3, up from 49.3.

Despite this improvement, the unemployment subindices remained in contractionary territory, reinforcing China’s labor market challenges.

The cost of raw manufacturing materials surged in October. The NBS input price subindex moved to 53.4, up from 45.1 in September.

• The Caixin subindex also expanded.

The rising cost of raw materials is leading to upward pressure on factory gate prices.

• The NBS producer price subindex snuck up to 49.9, still in contractionary territory, but the highest reading in five months.
• The Caixin subindex recorded a slight expansion, the first time in four months.

Why this is significant: Producer prices have fallen for 24 consecutive months – rising raw material costs may force manufacturers to raise prices, helping end this deflationary spiral.

• However, if factory gate prices continue to fall – despite rising raw material prices – industrial profits will take a hammering.

Get smart: The October PMI print does not point to strong growth momentum, but importantly, it does suggest further economic stabilization, building on the early positive signs we saw in September.