Manufacturing in China contracted to an 11-month low, according to a preliminary reading of the flash PMI. China's March flash manufacturing PMI was 49.2, an eleven month low. A reading under 50 signifies contraction. The output index was 50.8, down from 51.7 in February. Manufacturing in China was worse than expected. The sector last contracted in January, with a reading of 49.7.
It should be noted that the HSBC index is heavily skewed towards small, private companies and tends to be more volatile than China's official CFLP PMI, which focuses more on state backed companies. However the last reading for the official PMI, which came in at 49.9 in February, also pointed to a worsening economy. Among the subindexes, eight of 10 decreased.
The flash Purchasing Managers' Manufacturing Index (PMIs) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors. The flash estimate is released about 10 days prior to the final PMI, which is posted usually on the first of the month.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
The Markit PMI manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices. The flash estimate gives investors an advanced look at what to expect on the first of the month.
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