The Chinese economy – as it did in the first quarter of the year – continued to underwhelm in April.
The closely watched manufacturing purchasing manager index (PMI) released by the National Bureau of Statistics, a reading on activity within the manufacturing sector, held steady at 50.1 in April. The figure, fractionally above the 50.0 level that indicates no change in overall activity, was fractionally above expectations for a decline to 50.0.
While the headline reading beat the internals of the report suggest that activity across the sector could actually contract, rather than accelerate, in the months ahead.
As was the case in March an acceleration in output to 52.6 was the chief catalyst that allowed to index to remain in positive territory. The increase, the fastest pace of growth seen since October last year, masked weakness elsewhere within the report – particularly in indicators that point to likely activity ahead.
Although new orders held steady at 50.2, a figure that indicates fractional growth in order books, the component remains at the equal-lowest level since November last year. More worrying than that outcome new export orders – a gauge on external demand – dipped to 48.1, the fastest decline reported in at least the past 12 months.
Order backlogs, another indicator on demand, fell back to 43.8 from 44.1 in March with the reading again the equal-lowest level seen in over a year.
The three components combined suggest activity will struggle to pick up in the months ahead.
Elsewhere there were disappointing readings on employment which fell to 48.0 while import prices – an early indicator for producer price data that will be released later in the month – also slipped to 47.8 from 48.1 in March. It looks like the deflationary pressures will persist within the economy for some yet.
While the manufacturing gauge held at the same level seen previously growth across services-based industries slowed sharply with the separate non-manufacturing PMI gauge sliding to 53.4. The reading – the third decline in a row – marked the slowest pace of growth seen since January 2014.
Looking ahead to next week markets will receive manufacturing and services PMI readings from HSBC-Markit – separate to those released by the NBS – along with trade data for May.
Is the PMI data today reflective of the broader trend in April? We’ll know soon enough.