Caixin China General Manufacturing PMI (June 2021)
PMI edges down to three-month low in June
• Softest increase in output for 15 months
• Total new order growth slows as export sales stagnate
• Employment continues to increase, as cost pressures ease
Data were collected 10-22 June 2021
The Chinese manufacturing sector expanded at a softer pace in June, with firms recording slower increases in both output and new orders. Companies indicated that the recent uptick in COVID-19 cases and supply chain difficulties weighed on output, while the pandemic dampened demand both at home and abroad. Companies continued to add to their staff numbers, however, as capacity pressures persisted. At the same time, input cost inflation eased notably on the month, which led to a slower rise in prices charged.
The headline seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – edged down from 52.0 in May to 51.3 in June, to signal a further modest improvement in the health of the sector. The reading was the lowest recorded in three months, however.
The headline Index was partly dampened by a softer increase in production at the end of the second quarter. The latest upturn was the slowest recorded since March 2020 and only slight. Panellists stated that the pandemic and difficulties obtaining inputs had weighed on growth.
Total new business likewise expanded at a slower rate in June. The modest increase was the softest seen for three months. Firms often linked higher sales to an ongoing improvement in underlying market demand. However, there were reports that the recent uptick in COVID-19 cases at home and abroad had dampened overall growth. Notably, new export work was broadly stagnant in June.
In line with the trend for new work, June data signalled a slower increase in purchasing activity, which rose modestly overall. The time taken for items to be delivered to manufacturers continued to lengthen solidly, however. Firms frequently mentioned that a lack of stock at vendors and logistical delays related to the pandemic had hampered supplier performance.
On the employment front, goods producers added to their workforce numbers again in June. Though marginal, the rate of job creation was the second-strongest since January 2013, with a number of companies attributing the upturn to sustained increases in new work and efforts to expand capacity. At the same time, backlogs of work rose for the fourth month in a row, though the rate of accumulation was only slight.
Manufacturers reported an increase in stocks of purchased items for the first time in six months, albeit only marginal. At the same time, inventories of finished goods fell at a solid and accelerated rate as firms increased their usage of current stocks to fulfil new orders.
Inflationary pressures meanwhile eased in June. Though sharp, the rate of input price inflation softened to a seven-month low. Higher cost burdens were overwhelmingly linked to greater raw material prices. At the same time, prices charged by manufacturers rose at the slowest rate since February.
Business confidence towards the year-ahead outlook for output remained strong in June, amid expectations that global economy will continue to recover from the pandemic. That said, the degree of optimism was unchanged from May's four-month low.
Commenting on the China General Manufacturing PMI data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:
“The Caixin China General Manufacturing PMI came in at 51.3 in June, down from 52 the previous month. The June reading marked the 14th consecutive month of expansion.
“Both supply and demand in the manufacturing sector continued to expand. The gauges for output and total new orders in June remained in expansionary territory for the 16th consecutive month and the 13th consecutive month, respectively, though the rates of expansion were slower than the previous month. The measure for new export orders dropped at a steeper pace than those for output and total new orders. Surveyed enterprises said the resurgence of Covid-19 in Guangdong province and overseas impacted both supply and demand.
“The job market continued to improve. Employment expanded for the third straight month in June, with the rate of expansion faster than the previous month. The measure for employment hit the highest point in seven months and was also the second highest since January 2013. Enterprises accelerated hiring, showing that continued improvement in demand was increasingly being reflected in the job market.
“Inflationary pressure remained as price measures stayed high. Both the gauges for input costs and output prices in June fell seven points from the previous month, but still remained in expansionary territory. The upwards trend for prices that has lasted for months moderated. Enterprises said the main causes of rising costs were the high prices of industrial metals and energy commodities. As a result, factory-gate prices continued to increase, though at a slower pace.
“Manufacturing enterprises’ delivery times continued to lengthen. Their stocks of purchases increased, while stocks of finished goods fell. The shortage of finished goods and the resurgence of the coronavirus in southern China lengthened suppliers’ delivery times. As a result, some manufacturing enterprises replenished their stocks, with the gauge for stocks of purchases rising into expansionary territory for the first time in six months. Due to rising demand, the gauge for stocks of finished goods remained in contractionary territory for four months in a row.
“Overall, the manufacturing sector continued to stably expand in June, despite the impact of the pandemic. Both demand and supply in the sector remained stable, as did external demand, showing the momentum of economic recovery still remained in the post-epidemic period. The job market continued to improve and businesses were highly optimistic, with the measure for future output expectations in June higher than the long-term average. Inflationary pressures eased somewhat, but manufacturing enterprises’ purchasing prices and factory-gate prices still rose. The shortage of raw materials continued in some regions. The manufacturing sector has gradually returned to normal. In the second half of this year, the low base effect from last year will weaken. Inflationary pressure, coupled with the economic slowdown, is still a serious challenge for China.”
Dr. Wang Zhe
Caixin Insight Group
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