China Manufacturing Gauge Declines From a Nearly Five-Year High

• China Manufacturing Gauge Declines From a Nearly Five-Year High

China’s official factory and services gauges pulled back from multi-year highs, dimming the outlook for the sustainability of the past two quarters’ acceleration in economic growth.

Key Points

• Manufacturing purchasing managers index fell to 51.2 in April from an almost five-year high of 51.8 in March, missing the median estimate of 51.7 in a Bloomberg survey and falling short of all projections
• Non-manufacturing PMI dropped to a six-month low of 54 from 55.1 last month
• Gauges still show momentum, as numbers higher than 50 indicate improving conditions

Big Picture

The first official economic indicator for the second quarter signals the expansion may be poised to decelerate this year after unexpectedly picking up to 6.9 percent in the first quarter, the first back-to-back acceleration in two years. The factory and services gauges remain at relatively robust levels, but April data showed broad-based weakening across employment, output, new orders and export orders.

While analysts have upgraded their forecasts for growth this year, according to a recent Bloomberg survey, tighter property curbs introduced in major cities and a higher base of producer prices than last year are likely to weigh on output in coming months, and top officials have signaled they will introduce stricter regulatory measures to curb financial risk.

Economist Takeaways

“The weakness is across the board” and points to slowing growth momentum, Zhou Hao, an economist at Commerzbank AG in Singapore, wrote in a note. “This on one hand reflects that there is little improvement in underlying demand; on the other hand, the de-leveraging effort by the Chinese authorities, has started to work. In general, China is in the course of monetary tightening and regulation strengthening.”

“Initial signs for April add to the case that China’s growth may be close to a peak for the year,” Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a note. “The main driver of that: a turn in the real estate sector, with sales slowing in the first quarter. A slightly tighter monetary policy stance, as the People’s Bank of China edges rates higher and loans slow, is also a factor.”

Manufacturing probably will stabilize at the current level or retreat slightly amid a stronger government emphasis on financial stability, said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing.

The Details

• Manufacturing weakened on falling market demand, lower commodities prices and slower export and import growth, the National Bureau of Statistics said in a statement
• Factories are still in an expansion mode, driven by the growth in high-technology equipment and consumer goods, the NBS said
• A gauge of small enterprises activity rose to a two-year high of 50 while conditions at large and medium-sized companies weakened slightly
• Output, new orders, and export orders all dropped
• Employment slipped to 49.2 from 50 in March