October's manufacturing PMI indicated that Chinese goods producers continued to deteriorate albeit at the weakest rate in four months. Total new business declined only modestly, helped in part by a renewed increased in new export orders. This in turn contributed to softer contractions of output and employment. Meanwhile, purchasing activity and inventories of inputs continued to fall amid reports of lower production requirements. The PMI reading improved to 48.3, up from 47.2 the month before indicating that the sector may be stabilizing.
Widespread evidence of reduced raw material costs led to a further marked decline in cost burdens, which in turn were passed onto clients in the form of lower selling prices. Operating conditions have now worsened in each of the past eight months, though the latest deterioration was the weakest since June. Total new business placed at Chinese goods producers declined for the fourth month in a row in October. However, the rate contraction eased since September's recent record and was only modest. Softer domestic demand appeared to be a key factor weighing on overall new work as new export business increased for the first time since June, albeit marginally.
A further decline in overall new orders led firms to cut their production schedules again in October. However, the rate of reduction also eased since September and was moderate overall. Manufacturing employment declined, thereby extending the current sequence of job shedding to two years.
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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