The Caixin Manufacturing PMI headline index for China advanced to 51.9 in December from 50.9 in November. The index is now at its highest level since January 2013 and has been at or above the 50 level for six consecutive months, after being below this level - indicating declining activity in the sector - for 16 consecutive months
Survey respondents reported a strong increase in output in December, with the production index increasing to a six-year high. This mainly reflected stronger domestic demand, with the new orders index increasing to its highest level since July 2014 but the new export orders index flat on the month. The employment index again indicated moderate job losses in the sector. Respondents reported input costs rose in December at their fastest pace since early 2011, while the survey also showed another strong increase in output prices, albeit at a pace slightly below that recorded in November.
The increase in the Caixin's manufacturing PMI survey's headline index in December contrasts with a moderate decline in the headline index for the official CFLP manufacturing PMI, released over the weekend. Nevertheless, both surveys continue to show that conditions in China's manufacturing sector have improved significantly since mid-2016.
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.