China's manufacturing sector continued to deteriorate in June, but there are promising signs for the future

The first Chinese economic indicator for June has just been released, and it has beaten expectations.

The HSBC-Markit flash manufacturing PMI gauge rose to 49.6 from 49.2 in May, the second consecutive monthly increase and above market expectations for an improvement to 49.4.

While this was a stronger reading than what had been expected, the gauge remains below the 50 level that separates expansion from contraction.

there were signs of improvement in June — albeit at the margin — as opposed to May, when every single component in the survey contracted.

The table below shows how the various components of the PMI survey fared in June.

In a sign that demand is improving, and will likely continue to improve in the months ahead, new orders, purchase quantities, stock purchases and order backlogs all registered growth, having contracted previously, while stocks of finished goods fell at a faster pace than May. Elsewhere the decline in new export orders and input prices slowed. Overall output held steady.

While most components registered an improvement gauges on employment and output prices deteriorated at a faster pace than in May.

Reflective of the collective performance, Markit economist Annabel Fiddes described the result as a “mixed bag of data”.

“The latest Flash China Manufacturing PMI survey provided a mixed bag of data in June. On the one hand, the sector shows signs of improvement as output stabilised amid a slight pick up in total new work, while purchasing activity also rose slightly over the month. On the other hand, manufacturers continued to cut their staff numbers, with the latest reduction the sharpest in over six years. This suggests that companies have relatively muted growth expectations as demand conditions both at home and abroad remain relatively subdued.

The data adds to evidence that the sector has lost growth momentum in Q2 as a whole, and suggests that the authorities may step up their efforts to stimulate growth and job creation in the second half of the year.”

While the PMI gauge remains weak there is enough in this survey to suggest conditions for manufacturing firms may improve in the months ahead, in line with the overall outlook for the economy in the second half of year.

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