The final June reading of the China manufacturing PMI reading was 49.4, pointing to a further deterioration in the health of the manufacturing sector. This contraction was driven by the sharpest rate of job shedding across the sector since early-2009, while output also fell slightly on the month. However, there were some signs of improvement in the shape of renewed increases in total new orders and new export business, suggesting that client demand both at home and abroad is reviving. It is likely that more stimulus measures will be required to ensure that the sector can regain growth momentum and to encourage job creation. The CFLP reading released less than an hour before this one, indicated that the manufacturing sector barely grew with a reading of 50.2.
Total new orders rose for the first time in four months, though only slightly, while output contracted at a weaker pace than in May. However, manufacturers continued to cut their workforce numbers in June, with the latest reduction the strongest seen since February 2009. On the costs front, average input prices fell at a modest rate that was the slowest since last August, while companies discounted their selling prices for the eleventh successive month.
Manufacturers in China signaled a tentative improvement in overall demand conditions at the end of the second quarter. This was highlighted by a renewed expansion in total new business placed at goods producers in June, with new work from abroad also rising on the month. That said, the rate of growth was only slight in both cases.
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.
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.
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