China flash PMIs are up, but there’s a catch

The preliminary HSBC/Markit China manufacturing PMI for October was 49.1 — the best result in three months and a decent jump from September‘s final reading of 47.9. Growth is still below trend, but is the relative improvement a sign that monetary easing is having an effect and/or stimulus is taking place?

The table which highlights the direction and rate of change shows that the inventories are subsiding and both input and output prices are rising, which is excellent news on the surplus inventories front and suggests demand might indeed actually be picking up. Although “backlogs of work” are also shrinking — and faster. It’s a little too early to say manufacturing is truly recovering.

More ominous is the line “Employment: Contraction, faster rate”. This trend began to show up in July and it’s exactly what you (and the Chinese Communist Party) really don’t want employment to do…

Even Hongbin Qu, HSBC’s generally upbeat chief China economist, was concerned about the employment component:

October’s flash PMI reading continues to recover for the second month, thanks in part to a gradual improvement in the new orders index which picked up to a six-month high (albeit marginally below 50). This is helped by the filtering-through of the earlier easing measures. However, external challenges are still abound and the pressures on job market are lingering. This calls for a continuation of policy easing in the coming months to secure a firmer growth recovery.

Related links:
China flash PMIs – the employment factor - FT Alphaville
China flash PMIs show manufacturing is slowing a little more slowly – FT Alphaville