Reuters Poll Sees China’s Manufacturing PMI Steady at 50 in October
Key Facts
A Reuters poll forecast China’s official manufacturing purchasing managers’ index at 50 points in October, compared with September’s reading of 50.1, according to the average forecast of 23 economists. The forecast points to activity holding near the dividing line between expansion and contraction, rather than an actual October reading. The latest official figure available when this report was prepared was September’s reading, when the index rose 0.3 percentage points from the previous month. That returned the index to expansion after it remained below that level in August. Markets are watching for the release of official October data to determine whether the improvement continued.
Details of the September reading showed divergence among manufacturing activity components. The output index rose to 51.7 from 50.4 in August, while the new orders index fell to 50.5 from 50.6. Both readings put output and orders above 50, but the decline in the orders index from the previous month reflects a slight slowdown in the pace of improvement. The output index recorded a larger monthly increase than the orders index. These figures show the different paths of output and orders in the sector during September.
The divergence extended to company size: the purchasing managers’ index for medium-sized companies stood at 49.7 in September, while the reading for small companies was 48.9, according to the National Bureau of Statistics. Both indices remained below the 50 threshold, unlike the overall manufacturing reading of 50.1. These readings indicate that the aggregate index’s return to expansion did not include every company segment. By contrast, activity among larger companies was part of the picture reflected by the overall official index. This divergence provides context for the October forecast, which puts the overall index at 50 points.
In terms of actual activity, manufacturing value added rose 6.0% year on year in September, while value added at industrial enterprises above the designated size increased 5.5% in real terms. The total value added of these enterprises also rose 0.61% month on month. These figures offer additional production indicators alongside the purchasing managers’ survey, which measures activity trends through diffusion indices. Annual manufacturing growth was higher than growth in total value added at industrial enterprises in the same month. September’s reading thus shows a mix of improved output, new orders slightly lower than the previous month and relatively weak readings among smaller companies.
In services and non-manufacturing activities, the business activity index stood at 50.2 in September, up 1.2 percentage points from August and back in expansion. This reading was stronger than those for small and medium-sized manufacturing companies and exceeded 50. The index covered non-manufacturing activities, so it does not measure factory performance alone. According to the official reading, the monthly improvement in non-manufacturing activity was clearer than the increase in the overall manufacturing index, which rose 0.3 percentage points. Services data add to an economic picture in which sectors are not moving at the same pace.
The activity data are set against the economic growth reading reported by Reuters: China’s gross domestic product grew 4.5% year on year in the third quarter, compared with 4.3% in the second quarter. At the same time, the agency’s report described the manufacturing sector as moving at two speeds, with advanced manufacturers advancing while traditional producers remained under pressure. That description corresponds with the widening gap between the small and medium-sized companies index and the overall reading in September. Third-quarter GDP growth also does not change the fact that the October manufacturing index estimate is a forecast ahead of the release. The awaited official index reading remains the nearest test of the direction of factories after September’s improvement.
Attention next turns to the RatingDog manufacturing index, compiled by S&P Global and scheduled for release on 2 November. A Reuters poll forecast the index at 51.6, compared with a reading of 52.1 in September. The index covers the private sector and offers a parallel measure to the official index. Comparing the two readings will allow observers to track differences in activity trends across their respective coverage, in light of Reuters’ description of the sector as moving at two speeds. The official index forecast of 50 points remains a poll estimate until the actual reading is released.