Last night, China posted a strong January PMI number, unexpectedly coming in above 50, and for now allaying fears of a hard landing.But underneath the hood things weren’t so pretty.
As Nomura notes, there seems to have been an unusual seasonal adjustment.
China’s official Purchasing Managers’ Index (PMI) unexpectedly rebounded to 50.5 in January from 50.3 in December, much better than expected (Consensus: 49.6; Nomura: 49.0). The uptick may be partly due to an unusual seasonal adjustment. Since 2005 the PMI has shown a strong seasonal decline of 1.1 points on average in January (except for 2009). The accompanying press release indicates that the PMI this month was seasonally adjusted; an unusual move that may have contributed to the rebound.
What’s also worrisome is that several key subcomponents showed strain.
…the export outlook appears to be under increasing strain, as the new export orders component fell sharply to 46.9 from 49.8 in December. Moreover, the overstock order component fell to 43.2 from 46.6 and the import component to 46.9 from 49.1, both now at their lowest levels since early 2009, when the economy was seriously affected by the global financial crisis. The employment component fell sharply to 47.1 from 48.7, the lowest in 35 months. Besides the impact from the new year, we believe the employment component reading may also reflect the strain facing the labour-intensive export sectors.