China’s Manufacturing Treads Water in June as Services Perk Up

  • Non-manufacturing PMI at 53.7, compared with 53.1 in May
  • With PBOC remaining cautious, fiscal spending is stepping up

China June Manufacturing PMI Points to Stability

China’s official factory gauge retreated to the dividing line between improvement and deterioration last month, while a measure of services perked up, underscoring the two-speed pace of growth in the world’s second-largest economy.

Key Points

  • Manufacturing purchasing managers index at 50 in June, matching economist estimates in a Bloomberg survey and dropping from 50.1 
  • Non-manufacturing PMI was at 53.7, compared with 53.1 in May
  • Labor market components of both PMI gauges decreased: Manufacturing employment fell to 47.9 while the services reading dropped to 48.7
  • Separate manufacturing PMI reading from Caixin Media and Markit Economics fell to 48.6 in June from 49.2 in May
  • Numbers above 50 indicate improving conditions

Big Picture

While factory output remains weighed down by a tepid global growth outlook -- made more gloomy by Britain’s vote to exit the European Union -- domestic demand has held up as spending on services from delivered lunches to cinema tickets takes off. The central bank has kept its main rates at a record low since October as policy makers seek to rein in overcapacity without derailing the economy, leaving the onus on fiscal measures to underpin growth.

Economist Takeaways

"The economic growth in the next few months will still be led by the government, by infrastructure," said Xu Gao, chief economist at Everbright Securities Co. in Beijing. "The People’s Bank of China will be very cautious."

"It means that things are still holding up. That, I think, is a reassuring message," Julia Wang, an economist with HSBC Holdings Plc. in Hong Kong, said in a Bloomberg Television interview. "There’s also an element of really poor global demand, and that’s not really changing any time soon. That justifies more fiscal stimulus, at least in the short term."

The Details

  • Measures of new orders, inventories, new export orders and input prices among components of factory gauge that declined
  • Large enterprises conditions actually improved last month, with small and medium sized firms going backward, manufacturing PMI shows
  • On services measure, new orders, selling prices and business activity expectations among components to improve
  • Shanghai Composite Index climbs 0.2 percent at 9:44 a.m. local time

— With assistance by Xiaoqing Pi

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