- Chinese PMIs weaker
- Trend steady nevertheless
- Asia still the growth driver


By Greg Peel

In last month's round of manufacturing purchasing managers' index (PMI) data, China's result fell slightly to 50.1, the US saw a slight rise to 50.9 and the eurozone saw a slight rise to 48.8. These numbers measure not growth itself but the pace of growth, with 50 suggesting a steady pace, numbers above 50 an expanding pace, and numbers below 50 a contracting pace.

Hence it appears Chinese manufacturing is almost dead steady, the US is much the same and the eurozone continues to see contraction, albeit at a milder pace. However, as DBS Group Research points out, this is not quite the case. While a 50 level does imply 0% growth in the US and Europe, the same level for China actually implies 9% industrial production growth. A level of 55 implies around 14%. One cannot make distinct apples to apples comparisons.

PMI measurements have become a lightning rod for global economic sentiment in recent years. The more investors have focused on the monthly data, and on their preceding "flash" estimates, the more volatile have markets become around data releases. It would seem at present, for example, that were Beijing to release a number under 50 for July it would seem as if the sky had fallen in.

But there won't be a data release in July, because Beijing has temporarily suspended the publication of its official PMIs. As the government struggles with issues of financial reform, the suspension was deemed necessary given an overload of survey data being received, an imbalance of industry responses (the steel industry appears to have gone quiet, for example), and a clamp-down on the practice of over-invoicing for currency speculation purposes, which distorts the data.

Fortunately HSBC publishes its own, independent Chinese PMI data, which has a greater skew towards smaller private companies and away from large state-owned companies. The bad news is that while Beijing's manufacturing PMI fell in June to 50.1, HSBC's number is already implying contraction at 48.2. More market volatility may be on the cards when HSBC's becomes the sole benchmark reading this month.

If we take a step back from typical market panic, DBS notes the Chinese official PMI has been bouncing around the 50.5 level now for 14 months, implying that for over a year Chinese industrial production has been growing at a touch over 9% pretty steadily. This implication is backed up by Beijing's actual industrial production readings, which have been coming in around the 9% year-on-year growth mark now since mid-2012.