China Manufacturing PMI: It's At Recession Levels, Folks

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by: Constantin Gurdgiev

China manufacturing PMI signalled another month of deterioration in operating conditions for January 2016. Per Markit,

with both output and employment declining at slightly faster rates than in December. Total new business meanwhile fell at the weakest rate in seven months, and despite a faster decline in new export work.

Overall, PMI index came in at 48.4 in January, marginally up from 48.2 in December 2015, marking the 11th consecutive month of sub-50 readings. The 3 month average through January 2016 is now at 48.4 against the 3 month average through October 2015 at 47.6. The current 3 month average is down significantly on 49.8 3 month average through January 2015. The last time Chinese Manufacturing posted a statistically significant expansion (as measured by PMI reading above 51.46 - the statistically significant growth marker) was back in July 2014.

Interestingly, Markit is using very 'diplomatic' language in their release, saying that

Production at Chinese goods producers fell for the second successive month in January. Though modest, the rate of contraction was the fastest seen in four months. According to panellists, relatively weak market conditions and fewer new orders had led firms to cut production.

In simple terms, this means that the Manufacturing sector in China is not growing slower, but is contracting. Which, of course, is vastly inconsistent with official GDP growth data. Over the last 15 months, Chinese Manufacturing managed to hit PMI >50.0 on only one month. One month. How this can be consistent with an economy growing at 6.9 percent is anyone's guess.

And Chinese companies are now appearing to be deep in revenue recession too. Per Markit:

Weaker client demand led manufacturers to discount their prices charged again in January, thereby extending the current sequence of deflation to 18 months (although the rate of reduction was the slowest seen since June 2015). Lower selling prices were supported by a further fall in average input costs at the start of the year.

In fact, Chinese Manufacturing PMIs have now been running second worst in the BRIC's group since July 2015, staying above only Brazil's - a country that is in an outright recession.

Click to enlarge

I mean are you getting any signs of the 6.8-6.9 percent growth anywhere here? No? Well, in general, Services PMIs are also in a tanking mode, but more on this separately.