July manufacturing PMI posted a reading at 47.8, down from 49.4 in June and below the neutral 50.0 mark for the fifth successive month. It was also down from the flash reading of 48.2. Furthermore, the latest index reading signaled the sharpest deterioration in the health of the sector since July 2013.
July manufacturing PMI signaled that the downturn in China's manufacturing sector intensified at the start of the third quarter. Renewed drops in both total new work and new export orders led manufacturers to cut production at the fastest rate since November 2011. Softer client demand and reduced output requirements contributed to further job shedding and lower purchasing activity, with the latter declining at the sharpest rate since January 2012.
Meanwhile, deflationary pressures persisted, with both input costs and output charges declining in July and at faster rates than in the previous month. Following a slight improvement in June, total new business received by Chinese manufacturers fell in July. Furthermore, the rate of decline was the quickest seen since March 2014. Data signaled that both domestic and foreign demand had softened in the latest survey period, as highlighted by new export work also falling in July after a slight pickup in June.
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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