As Exhibit 1 shows, industrial production continued growing both times. The official manufacturing PMI has had two lengthy contractionary spells in recent history-one in 2014 – 2015 and one in 2019. Don’t get too excited by incremental moves down or up, especially when they are very close to 50, like China’s latest figures.Ĭhina’s own history vets this out. So while we think PMIs are handy, as they are generally the first economic indicator released for a given month, we think it is best to take them with a grain of salt. If only 49.6% of businesses reported growth, but they grew by more than the others contracted, then output can still rise in a given month. So September’s 49.6 manufacturing PMI means a slight minority of firms reported expansion.īut because the PMI doesn’t measure how much businesses grew, the relationship between PMIs and output is fuzzy at best. If it is below 50, it implies contraction. If it exceeds 50, a majority of firms reported expansion, which implies the sector grew. The index’s reading, roughly, is the percentage of businesses reporting increased economic activity overall. Then the agency producing the PMI compiles all the results and computes them into an index. Businesses report on whether output, new orders, employment, supplier delivery times and sentiment rose or fell versus the prior month. That responsibility lies with output measures like industrial production. They do not measure-or even attempt to measure-how much activity increases from month to month. Interpreting PMIs correctly requires a clear understanding of both their quirks and their history. In our view, that is just a tad hasty, and the likelihood that global markets will have to reckon with a hard landing in the world’s second-biggest economy remains low. These survey results were all pundits needed to conclude that China’s energy crisis is adding to economic pressures, jeopardizing the global recovery from lockdowns. Caixin’s PMI, which includes a host of smaller private firms, technically broke even at 50.0, but its production subcomponent remained in contractionary territory, according to the press release from Caixin and IHS Markit. Thursday brought the first look at how China’s electricity shortage is affecting the economy, and the results weren’t exactly pretty: The government’s official manufacturing purchasing managers’ index (PMI) sank to 49.6 in September, implying contraction. Institutional Investors Business 401(k) Services MarketMinder Locations.
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