The Caixin Manufacturing PMI headline index rose from 50.1 in September to 51.2 in October. This is the strongest level since July 2014, and well above levels seen early in the year. The index has now been at or above the 50.0 level for four consecutive months, after being below this level - indicating declining activity in the sector - for 16 consecutive months.
The increase in the headline index in October was largely driven by indications of stronger output in the sector. The survey's production index rose to its highest level since 2011, with new orders growing at their fastest pace in more than two years. This increase in new orders was entirely driven by domestic customers, with the survey showing a slight fall in new export orders in October. Survey respondents reported job losses but at the slowest pace since May 2015.
This survey is consistent with the NFLP Manufacturing PMI, which was also published today and which also showed stronger output, stronger domestic new orders, weaker new export orders and a slower pace of job losses. Together, these two surveys provide clear evidence that conditions in China's manufacturing sector have improved in recent months after a slowdown around the turn of the year.
The Caixin Manufacturing Purchasing Managers' Index (PMI) is based on monthly a questionnaire that surveys of over 500 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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