China’s PMI on a 5-year high
By Suyang Zhou - Research Analyst
China's manufacturing and non-manufacturing PMI was up 0.7 ppt and 2.0 ppt to 52.4% and 55.4%, respectively in Sep 2017, of which manufacturing PMI climbed for two straight months. Both PMIs hit new highs since May 2012 and Jun 2014.
Drilling into the details, manufacturing PMI was driven by recovery in both supply and demand sides. One notable change is that new orders (54.8%) surpassed production (54.7%) for the first time since 2013, indicating that imbalance between supply and demand was mitigated. However, raw material purchasing cost index surged to 68.4% in light of supply-side reform. The prosperous manufacturing also propped up non-manufacturing PMI, of which business activity index edged 5.1% higher than previous headline. In summary, booming PMI readings in quarter-end month imply that the upcoming Q3 2017 GDP could again perform better than expected.
Looking into manufacturing PMI by enterprise category, PMI in large enterprises was up 1% to 53.8%. By contrast, PMI in medium and small-sized enterprises moved slightly higher to 51.1% and 49.4%, respectively in September. Clearly, PMI in large enterprises was the locomotive of rebound for manufacturing PMI.
Drilling into the composition of manufacturing PMI, production (54.7%) and new orders (54.8%) were major drivers, rising 0.6 ppt and 1.7 ppt respectively thanks to improved demand from home and abroad. Notably, new orders surpassed production for the first time since Jan 2013, indicating that imbalance between supply and demand was mitigated.
However, material inventory rose 0.6 ppt to 48.9%, indicating depletion of material inventories was slightly slower than previous month. Meanwhile, employment (49.0%) and supplier deliveries (49.3%) were laggards due to inactive hiring and longer delivery time of raw materials in the manufacturing industry.
Domestic orders, as is measured by the difference between new orders and new export orders, bounced back for three months in a row, another indication of improved domestic demand.
Besides, the difference between material and finished goods inventory, the so-called manufacturers' willingness of re-stocking, was picking up further in September thanks to ongoing inventory depletion.
Last but not the least, as leading indicators of producer price index (PPI), output and input prices were continuously moving up. This implies that upcoming PPI for September could edge up further.