China's flash manufacturing PMI reading for July slid to a reading of 48.2 from 49.4 June's final reading. It was the fifth consecutive month of contraction. The output index slumped to 47.3 from 49.7. A reading under the 50 breakeven point signals contraction. In addition to the overall index and the output index, three subindexes declined at a faster rate. They were backlogs of orders and both input and output prices. Four subindexes changed direction and are now contracting new orders, export orders stocks of purchases and stocks of finished goods. Employment continued to decrease, but this time at a slower rate.
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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