Chinese Manufacturing PMI Slumps To 8-Month Low, Services PMI To 3-Month High; Goldman Admits Growth Decelerating

UPDATE:*CHINA HSBC MANUFACTURING PMI AT 48.5 FOR FEB. (as expected and marginally above the Flash print)

Chinese manufacturing PMI fell to an 8-month low holding barely above the crucial 50 level yesterday forcing Goldman to admit that “this signals further deceleration” in Chinese growth. All sub-indices showed signs of cyclical slowdown from January to February with perhaps the two most-critical ones – production and new orders – showing considerably larger falls than the headline index itself as we await this evening’s HSBC print to confirm an average ‘contraction’. China’s Services PMI just printed at 55, up from 53.4, to a 3-month high led by a surge in the “expectations” sub-index.

China Services PMI rose to 3-month highs… as new orders rose but the “expectations” sub-index jumped the most as hope trumps any current weakness as input prices slumped to 10 month lows.


China Manufacturing PMI fell to 8-month lows

Ahead of this evening’s HSBC-version (which printed 48.3 Flash) of Manufacturing data, Goldman’s summary is oddly (honest) pessimistic on China’s Manufacturing industry…

The latest PMI data is another piece of evidence of slowing activity growth since 4Q 2013. Data at the start of the year tends to be noisy in general, and unlike some other indicators taking the average of January and February PMI readings doesn’t necessarily override the Chinese New Year distortions (this is because survey results can be affected by the timing of the survey which covers only a short period over several days within the month). However, the consistency of the signal is such that there is little doubt that growth has been weak and probably becoming weaker since the end of the year. We see risks to our 7.7% GDP forecast for 1Q tilted more towards the downside.


We believe the combination of a tight monetary policy stance, heightened anti-corruption and anti-pollution campaign, inventory destocking and slower than expected external demand contributed to the slowdown. While over the longer term measures such as anti-corruption measures can improve the efficiency of the economy, they can often put significant downward pressures on demand growth in the short term.

Of course, there’s always hope when things get ugly…

The top leadership has shown clear willingness to maintain broad growth stability in the latest politburo meeting, though at the moment there is no information on detailed policy measures.

In other words, bad news is great news (or keep BTFATHing in US stocks because the PBOC will rescue any and all growth slowdowns) – or will they…

Bank of America has some more confidence that it will all be ok in the end…

We suggest investors not read too much into the PMI “slowdown” in February. Instead, markets should focus on yoy activity data for the combined January and February period to be released in the next two weeks. It’s our high conviction call that the official PMI will rebound back to around 50.5 in March.

So blame seasonality (that happens every year!?) and a belief that a central planner who has abrogated currency weakness (to tame carry trader exploitation) and liquidty squeezes (to tame risk appetite in high-yield shadow bank vehicles) will ‘stimulate’ once again (and pump up the real estate bubble once again) to meet the “hope” that is priced into markets.


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