China’s official manufacturing PMI fell to 49.4 in December, from 50.0 in November, the lowest reading since February 2016; and the weakest reading for a December since 2008.
Under the hood, it was just as ugly, as Goldman notes, both the production and new order sub-indexes fell in December. The production index declined to 50.8 from 51.9, and the new orders decreased to 49.7 from 50.4. Trade indicators continued to soften as well – the imports sub-index dropped 1.2pp to 45.9 and the new export order sub-index was at 46.6, vs. 47.0 in November. Both indexes were at the weakest levels since late 2015/early 2016. The employment sub-index edged down slightly by 0.3pp to 48.0. Inventory indicators went down – the raw material inventories index was 0.3pp lower, and the finished goods inventory index dropped by 0.4pp in December to 48.2. Inflationary pressures eased meaningfully – the input price index dropped by 5.5pp to 44.8, the lowest level since December 2015, and the output prices index was 3.1pp lower at 43.3.
Judging by the official PMI surveys, manufacturing activity growth may have softened further in December. One small caveat though is that NBS manufacturing PMI tends to fall in December (since 2010, on average NBS manufacturing PMI fell by around 0.1pp). The lower commodity prices may have also contributed to the decline in the headline manufacturing PMI reading. Trade data may have continued to slow in December, as implied in the low readings of trade indicators under PMI. Weaker external demand combined with trade tensions have contributed to the slower trade growth.
“The next few months will be crucial to the Chinese economy’s direction and policy focus. Signs of domestic demand bottoming have yet to emerge. External pressures may accumulate, with exports possibly slowing as the front-loading effect wanes.”
–Chang Shu and David Qu, Bloomberg Economics.
Of course, all this bad news prompts the stablishment’s knee-jerk goldilocks response that this is good news because government will be forced to unleash more stimulus:
Goldman: “we continue to expect accommodative policy stance to support overall growth (in particular we expect lower interbank rates and more RRR cuts in 1H next year).”
“The slowdown will continue into the next year,” said Larry Hu, a Hong Kong-based economist at Macquarie Securities Ltd.
“The weak PMI could result in more government stimulus to shore up the economy.”
However, as we noted previously, it is not working!!
All of which leave us asking – Is Trump winning?
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