Markit Economic Research

20/06/2013

China manufacturing
Flash PMI at nine-month low as export orders fall at fastest rate for four years
Flash manufacturing PMI slips to 48.3 in June Export orders fall at fastest rate since March 2009 Stocks of finished goods show largest quarterly rise in survey history, often linked to weak demand

Export-led downturn
Output fell for the first time since last October, falling in response to a second successive monthly reduction in new orders, which suffered the steepest monthly decline since August of last year. New export orders fell especially sharp, dropping at the fastest rate since March 2009. Further falls in production are likely in coming months. Not only did inflows of new orders fall, but stocks of finished goods rose for the fourth consecutive month. The rise in inventories is largely attributable to demand running lower than expected. The increase in stocks in the second quarter was the largest seen since the survey began in 2004. Manufacturers cut back on their purchases of inputs to the greatest extent since September of last year in the face of weakened sales, adding to the evidence which suggests production may be cut again in July. Prices fell as firms sought to stimulate sales. Input costs fell for the fourth month running, albeit to a lesser degree than in the prior two months, while manufacturers selling prices fell at the steepest rate since last August, likewise dropping for the fourth month in a row. Finally, manufacturers reported the largest monthly fall in employment since last August, cutting headcounts for a third month running in order to adjust production down to meet weakened demand. Exports
China's exports, annual % change 60 50 40 30 20 10 45 0 -10 -20 China exports -30 -40 -50 '04 '05 '06 '07 '08 '09 '10 HSBC/Markit PMI New Export Orders Index 30 25 '11 '12 '13 Sources: Markit, Ecow in. 40 35 55 50 Markit's HSBC PMI 65 60

PMI and GDP compared

China GDP, annual % change 15 HSBC Manufacturing PMI 60

GDP
13

PMI

58 56 54 52

11

9 # 7

50 48 46 44 42

3 2005

40 2006 2007 2008 2009 2010 2011 2012 2013

Sources: Markit, Ecow in.

Business conditions in Chinas manufacturing economy deteriorated at the fastest rate for nine months in June, according to the HSBC flash PMI, produced by Markit. The headline PMI fell from 49.2 in May to 48.3, its lowest since September and signalled a second successive monthly downturn of the goodsproducing sector. The flash results are based on approximately 85% of usual monthly replies and provide an accurate advance indication of the final results, which will be published on 1 July. The survey therefore adds to a recent flow of economic data out of China which indicate that the rate of growth of the worlds second largest economy has slowed in the second quarter. The average PMI reading for the second quarter was 49.3, down from 51.5 in the first quarter, and the weakest since the third quarter of last year. Gross domestic product growth is therefore likely to have weakened from the already-disappointing annual pace of 7.7% recorded in the first quarter.

Markit Economic Research

Orders and output

HSBC (Markit) Manufacturing PMI
65

Prices
HSBC (Markit) Manufacturing PMI
90 80

60

70
55

60 50 40

50

45

Output
40

30 20 10 Jan 05

Output prices Input prices

New orders

35 Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Source: Markit.

Source: Markit.

Employment and order book backlogs

HSBC (Markit) Manufacturing PMI
58

Suppliers delivery times (a measure of supplychain price pressures) v. consumer price inflation
Consumer prices, annual % change 10

HSBC (Markit) Manufacturing PMI

40 42 44 46

54

50
4

48 2

46

50

Employment Backlogs of work

42 Jan 06

52

-2

Consumer price inflation PMI Suppliers' Delivery Times Index (inverted)

54 56

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13 Source: Markit.

-4 Jan 05

Jan 06

Jan 07

Jan 08

Jan 09

Jan 10

Jan 11

Jan 12

Jan 13

Source: Markit, NBS via Ecow in.

Chris Williamson
Chief Economist Markit Tel: +44 207 260 2329 Email: chris.williamson@markit.com For further information, please visit www.markit.com

20/06/2013