The Caixin Manufacturing PMI headline index for China fell from 51.9 in December to 51.0 in January. The index has been at or above the 50 level for seven consecutive months, after being below this level - indicating declining activity in the sector - for 16 consecutive months.
Survey respondents reported output rose in January but at the slowest pace since September. New orders were also reported to have increased more slowly, partly offset by stronger new export orders, which grew at the fastest pace since September 2014. The survey indicates employment levels in the sector fell modestly in January. Manufacturers, however, are more positive about the near-term outlook, with their forecast for output over the next twelve months at a six-month high.
Similar to other regional PMI surveys, China's manufacturing PMI indicates price pressures have continued to build in January. Input costs rose at only a slightly slower pace than they did in December - which was the fastest since early 2011 - and respondents reported that they passed on these higher costs into higher selling prices for the eleventh consecutive month.
Today's survey is broadly consistent with the official CFLP PMI released earlier in the week, which also showed slightly weaker output and new orders, stronger new export orders, and modest job losses. Although the headline index for both surveys fell in January, both 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.