Caixin China General Manufacturing PMI (November 2021)

Output expands slightly in November, but demand conditions soften

Key findings

• Output rises for first time in four months as power supply issues unwind...

• ...but total new orders fall slightly

• Inflationary pressures ease markedly

Data were collected 12-22 November 2021

Latest PMI data indicated that overall business conditions faced by Chinese manufacturers were broadly unchanged in November. Output rose for the first time in four months as disruption to production schedules from power supply issues eased, but total new business fell slightly. As a result, capacity pressures subsided, with backlogs rising only slightly, while softer demand conditions also contributed to a further drop in staff numbers. Prices data meanwhile showed notable slowdowns in the rates of both input cost and output charge inflation.

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 – dipped from 50.6 in October to just below the neutral 50.0 mark at 49.9 in November. This indicated that operating conditions were broadly unchanged on the month after a slight improvement in October.

Three of the five PMI components weighed on the headline index in November, namely new orders, employment and suppliers' delivery times (inverted for the calculation). Output and stocks of purchases indices meanwhile had positive directional influences on the PMI figure.

Chinese manufacturing output rose for the first time since July during November, though the rate of expansion was only fractional. Panel members indicated that firmer market conditions and a relative improvement in energy supply had supported higher production. That said, subdued customer demand, rising costs and limited power supply at some firms dampened overall growth.

Total new work fell marginally in November, following two months of expansion. Some firms linked relatively muted demand conditions to the pandemic and high output prices. New work from abroad also fell, albeit at the softest rate for four months, amid reports of reduced foreign demand due to the ongoing pandemic and challenges in shipping items to clients.

Softer demand conditions and improved production led to a slower rise in backlogs of work midway through the fourth quarter. Unfinished business rose at the slowest rate for nine months and only slightly. At the same time, manufacturers cut their staff numbers for the fourth time in as many months. That said, the rate of job shedding remained marginal.

Reduced sales also contributed to a further drop in buying activity, which declined modestly overall. Inventories of both pre- and post-production items meanwhile rose only slightly.

Although supplier performance deteriorated again in November amid reports of low stock levels at vendors and logistical delays, the degree to which times lengthened was only mild. Notably, the incidence of delays was the lowest since March.

After rising rapidly in October, manufacturing input costs rose only modestly in November. Moreover, the rate of inflation was the slowest seen since October 2020. While many firms commented on higher raw material and transportation costs, others indicated that some materials had fallen in price. Subsequently, the rate of output charge inflation also slowed considerably on the month.

Looking ahead, goods producers were generally confident that output will rise over the next year, with the degree of positive sentiment picking up from October.

Comment

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 49.9 in November, down from 50.6 the previous month. The index plunged into contractionary territory for the second time since April 2020.

“Supply in the manufacturing sector recovered, while demand weakened. Relaxing constraints on the supply side, especially the easing of the power crunch, quickened the pace of production recovery. In November, the measure for output returned to positive territory after remaining in negative territory for three consecutive months. But demand was relatively weak, supressed by the Covid-19 epidemic and rising product prices. The pandemic hurt external demand, with the gauge for new export orders staying in negative territory for the fourth straight month in November.

“The job market continued to contract. Weak market demand and cost pressures restricted manufacturing enterprises’ recruitment. The measure for employment remained in negative territory for the fourth month in a row in November, with the pace of contraction even steeper than the previous month. Consumer goods manufacturers showed a particularly obvious reduction in hiring.

“Inflationary pressure was partly eased. Under the impact of regulations to contain surging commodity prices, manufacturing enterprises’ input costs in November increased at a slower pace than the previous month. Surveyed enterprises said the prices of steel fell at a steep pace. But the prices of chemicals and electronics remained high, as did freight rates. Thanks to the drop in the measure for input costs, the gauge of output prices fell in November, though both remained in positive territory. Still, the gauges of input costs and output prices have remained in expansionary territory for 18 months and 19 months, respectively, indicating that inflationary pressure should not be underestimated.

“Manufacturing enterprises’ inventories expanded. Production by manufacturing enterprises recovered, but due to the gap between supply and demand, the inventories grew. Both the gauges of stocks of purchases and stocks of finished goods returned to positive territory in November. Logistics improved in November compared to the previous month, but suppliers’ delivery times were still extended.

“Entrepreneurs remained optimistic about the outlook for market demand. The improvement of the epidemic situation, the increase in demand and the recovery of supply chains are all positive factors.

“To sum up, the manufacturing sector remained stable overall in November. Increased downward pressure and easing inflationary pressure were prominent features of the economic situation. From late October to mid-November, there were sporadic new Covid outbreaks in several Chinese regions, which had a negative impact on the economy and particularly supressed the demand side. After the shortage of power was alleviated, the supply side began to recover. But due to weak demand, the supply recovery was limited, and the foundation of the recovery was not solid. The government’s measures to stabilize commodity supplies and prices began to bear fruit, which significantly eased cost pressures on manufacturing enterprises. But the gauges of input costs and output prices remained in expansionary territory, showing inflationary pressure still remained.

“Policymakers should still focus on supporting small and midsize enterprises. They should also pay attention to problems including deteriorating employment, limited growth of household income and weak purchasing power for consumer goods. In addition, the prices of some raw materials remained high. Enterprises are still facing high cost pressures. Policymakers should treat inflation seriously."

Contact

Dr. Wang Zhe

Senior Economist

Caixin Insight Group

+86-10-8590-5019

zhewang@caixin.com

Ma Ling

Senior Director

Brand and Communications

Caixin Insight Group

T: +86-10-8590-5204

lingma@caixin.com

Annabel Fiddes

Associate Director

IHS Markit

T: +44 1491 461 010

annabel.fiddes@ihsmarkit.com

Joanna Vickers

Corporate Communications

IHS Markit

T: +44 207 260 2234

joanna.vickers@ihsmarkit.com

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