China's manufacturing sector is strengthening after a stumble earlier this year

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Activity levels across China’s manufacturing sectors improved modestly in July, according to the latest Caixin-IHS Markit Purchasing Manager’s Index (PMI).

The survey’s headline PMI rose to 51.1 from 50.4 in June, indicating that activity levels strengthened modestly in July.

It was the highest reading in four months.

Source: IHS Markit

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.

The Caixin-IHS Markit survey was broadly in line with the government’s official manufacturing PMI index for July which came in at 51.4 in July.

Although both survey’s measure activity levels across China’s manufacturing sector, the Caixin-IHS Markit is a private survey that tends to focus on small and medium-sized firms.

The fact that it reported an improvement last month came as a welcome surprise given the government said activity levels for small and mid-sized firms deteriorated in its latest survey.

IHS Markit said the improvement in July was driven by improved readings on output, new orders and sales, helping to offset continued weakness in staffing levels.

“Companies indicated that both output and new orders rose at the fastest rates for five months, helped by a solid upturn in new export sales,” the group said.

“At the same time, inflationary pressures ticked up, with both input prices and output charges rising at faster rates than in June. However, companies maintained a relatively cautious stance towards employment, with staff numbers falling again in July.

IHS Markit said the reluctance of firms to add to staffing levels may have been due to a deterioration in the 12-month outlook for operating conditions which fell to the lowest levels since August last year.

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