Scepticism over the accuracy of Chinese economic data has just gone up notch following the release of the Caixin-IHS Markit manufacturing PMI report for May, with the survey painting a very different picture on the health of China’s industrial sector compared to the government’s figures released on Wednesday.
According to IHS Markit, its Purchasing Managers Index (PMI) came in at 49.6, below the 50.3 level reported in April and expectations for a smaller decline to 50.1.
It was the lowest reading reported since June 2016.
This 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.
That means in this instance, activity levels across the sector deteriorated last month — the first time that’s occurred in close to a year.
It was also well below the 51.2 level of the government’s official PMI report.
Just a small variance, but one that will no doubt raise concerns over the veracity of Chinese government data — something that continues to simmer away below the surface across financial markets.
Like the disappointing headline PMI figure, the internal components within the IHS Markit survey were also disappointing.
“The fall in the headline index coincided with slower increases in output and new orders, while staff numbers were cut at a quicker rate,” the group said.
“Subdued demand conditions underpinned a renewed fall in purchasing activity, albeit only slight, and the first increase in inventories of finished items so far this year.”
IHS Markit said that costs for raw materials and finished goods also fell, cementing the view that the recent lift in producer price inflation is now well and truly over.
Hardly a strong result, even with new orders — a lead indicator on future activity levels — continuing to grow at a marginal rate.
It’s also in stark contrast to the government report just a day ago, which said activity levels continued to improve at a modest pace in May, while the IHS Markit survey says they deteriorated.
The IHS Markit survey is smaller in scale to the one conducted by the government, and tends to focus on the performance of small and medium-sized firms rather than manufacturers of all sizes, yet it’s still hard to reconcile the difference between the two.
Indeed, the government report said activity levels for both small and medium-sized firms improved last month, coming in at 51.3 and 51% respectively.
The reaction across financial markets — both today and earlier this week — suggests investors are putting more weight on the IHS survey, selling down commodities, stocks and the Australian dollar as soon as the report was released.
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