China: PMI's suggest robust momentum rolls on - Westpac

In November, China’s official PMIs reversed part of October’s surprise fall and overall, both surveys point to continued robust momentum, according to Elliot Clarke, Research Analyst at Westpac.

Key Quotes

“At 51.8, the NBS manufacturing PMI is currently a touch below the long-run average and marginally above the average of the past year. This is despite a more stringent approach to environmental protection introduced of late.”

“Looking ahead, the new orders detail suggests this momentum should be sustained in December.”

“However, given the clear downtrend in fixed asset investment, across both the private and public sector, it is likely that activity in the manufacturing sector will slow through 2018.”

“The outlook depends as much on the external environment as it does the domestic scene. Here the data suggests that current demand will remain robust in the near term; however, external demand is also likely to soften in 2018 – albeit with a lag versus domestic demand.”

“Turning to the services sector, momentum has been a little weaker than for manufacturing. At November, the business activity index was 1.1pts below its long-run average compared to –0.2ppts for manufacturing.”

“For services, the pipeline of new work also remains robust, across both the domestic and external sectors – indeed, external demand is above average.”

“For the outlook, key for the services sector is employment growth. In both the manufacturing and services sector, this remains an area of concern. According to each of the NBS PMI surveys, employment growth remains materially below average and in a downtrend. As momentum slows through 2018, this situation will likely worsen, weighing on household income and spending growth.”

“Employment opportunities are an area of the economy that needs considerable investment from authorities over the long term.”

“Simply, to transition to a more consumer –centric economy, incomes must trend higher across the nation. To justify this, efficiency and productivity have to rise, and new business opportunities sought.”