China’s official gauge of manufacturing growth came in at the lowest level in 20 months in February thanks to a month-on-month slowdown that was unusually sharp, even when accounting for a shift in the timing of the country’s long lunar new year holiday.
The manufacturing purchasing managers’ index published by China’s National Bureau of Statistics fell to 50.3 in February, down a full point from January and marking the largest fall in more than six years. The fall left the gauge the closest to the 50-point mark, which delineates growth from contraction, since August 2016.
A median forecast from economists polled by Reuters had predicted only a slight slowdown to 51.1. None of the 28 forecasts for February had pencilled in a reading below 51 for the gauge, which is based on a survey of larger and predominantly state-run companies.
The statistics bureau said in a regular explanatory note released alongside the latest figures that the adjustment was typical of the slow season for manufacturing early in the calendar year centred on the shifting lunar new year holiday, when migrant workers return to their home villages and output typically dips. In 2017 the holiday stretched from the end of January through early February, while this year’s holiday fell entirely in February, ostensibly concentrating the usual slowdown within a single month.
Even so, the drop for the headline reading was markedly sharper than those normally seen in January or February, or even most months generally. February’s fall was the sharpest since a 1.4 point drop in November 2011 that pushed the gauge into contractionary territory with a reading of 49.
“The lower PMI readings for February may be partly due to Chinese New Year, since seasonal adjustments may not fully iron out the impact in year-to-year shifts in the timing of the holiday,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “But even if we account for such volatility by averaging across the first two months of the year, the data still point to a clear slowdown in early 2018.”
A variety of measures pointed to slower expansion, with a sub-index for growth in manufacturing output down 2.8 points at 50.7 in February, while that for new orders fell 1.6 points to 51. A sub-index for export orders fell half a point at 49, signalling intensified contraction in external demand. The pace at which companies shed workers also sharpened as an employment sub-index inched down 0.2 points from January’s level to 48.1.
Meanwhile, an index tracking factory-gate prices fell 2.6 points to 49.2, signalling the first instance of producer price deflation since June 2017 and snapping a seven-month streak of rising prices.
The official non-manufacturing PMI was also down in February, dropping 0.9 points to 54.4, a four-month low. A key sub-index for services sector growth fell 0.6 points to 53.8, a three-month low, while that for construction dropped 3 points to 57.5.
An independent reading on China’s manufacturing sector activity is due on Thursday morning in the form of the Caixin-Markit manufacturing PMI, which focuses primarily on smaller, privately owned manufacturers. That will be followed by a separate services PMI from Caixin on Monday.