Here's The Excuse Everyone's Giving For The Ugly Chinese Manufacturing Report

China rocked the Asian markets on Thursday when it was revealed that manufacturing sector activity unexpectedly contracted in January.

The HSBC Flash manufacturing purchasing managers’ index (PMI) fell to 49.6 in January from 50.5 in December. Economists were expecting a reading of 50.3.

“The marginal contraction of January’s headline HSBC Flash China Manufacturing PMI was mainly dragged by cooling domestic demand conditions,” said HSBC’s Hongbin Qu. “This implies softening growth momentum for manufacturing sectors, which has already weighed on employment growth.”

But many economists are cautioning against going into full freak-out mode because a big national holiday is coming.

“We are reluctant to read too deeply into this number,” said Bill Adams, senior international economist for PNC Financial Services. “Chinese statistics, even ones as ably adjusted for seasonal variation as the HSBC PMI, tend to get a little fuzzier around the Lunar New Year holiday which falls on January 31this year.”

“Even the HSBC flash PMI reading is based on surveys conducted before 21 Jan, 10 days before the LNY holiday (officially starting from 31 January), the flash PMI reading could still be significantly affected as the HSBC PMI sample is heavily dominated by small enterprises which may have sent migrant workers home several weeks ahead of the LNY holiday,” said Bank of America Merrill Lynch’s Ting Lu. “Also note that the different timing of LNY holiday makes seasonal adjustment extremely difficult, and thus inaccurate, for readings around the LNY season.”

Regardless, this doesn’t take away from the consensus, which continues to believe 2014 will be a year of decelerating growth as policymaker pull in the reigns.

“We expect more soft data prints ahead, as the impact of slowing credit growth seeps through to the real economy,” said Societe Generale’s Wei Yao.

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