China's economy provided something for both the bulls and bears in August

Photo: Mohd Rasfan/AFP/Getty Images

China’s economy offered something for both the bulls and bears in August, according to data released by China’s National Bureau of Statistics (NBS) today.

The nation’s manufacturing Purchasing Manager’s Index (PMI) came in at 51.7 in August, beating expectations for a decline to 51.3.

It was also stronger than the 51.4 level previously reported in July.

The PMI measures changes in activity levels across China’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests they’re deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

So at 51.7, that means that activity levels across the sector improved at a faster pace than July.

The NBS said that the PMI for large manufacturers fell 0.1 points to 52.8, while that for mid-tier firms improved after deteriorating in July, rising 1.4 points to 51.0. Smaller manufacturers remained the laggard, coming in at 49.1, up 0.2 points from one month earlier.

By activity subindex, production and new orders grew at a faster pace than July.

New export orders grew at a slower pace, indicating that the strength in orders was largely domestic in August.

Of note, prices for raw materials and finished products both increased at a rapid pace, indicating that higher input costs are being passed on to customers.

However, while activity levels across the manufacturing sector picked up, the same can’t be said for other sectors of the economy which saw activity levels improve at a slower pace than a month earlier.

The separate non-manufacturing PMI from the NBS, capturing the performance of China’s non-industrial sectors such as services and construction, fell to 53.4, below the 54.5 level of July.

That means that while activity levels continued to improve, they did so at a slower pace.

Indeed, as seen in the chart below, the PMI was the lowest level since May 2016.

The NBS said that new orders grew at a slower pace while those from abroad fell after a solid increase in July.

Not the best news given this is a lead indicator on activity levels across non-manufacturing sectors in the future.

In a further sign that construction activity is cooling following measures from policymakers to slow rapid house price, the PMI measuring construction activity fell to 58.0, down 4.5 points on one month earlier.

Although still pointing to a rapid improvement, it was well below the levels reported in the first half of the year.

Following the release of the government’s PMI reports today, market attention will now turn to the release of the Caixin-IHS Markit China PMI reports in the coming days.

They’re private sector surveys, and tend to generate more of a reaction across financial markets than the the official PMI reports.

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