China's manufacturing sector showed slightly slower activity in December but managed to show growth for the third straight month. The official purchasing managers index compiled by the China Federation of Logistics and Purchasing unexpectedly slipped to 50.1 (vs. consensus 50.3), just above the neutral line of 50, after firming to 50.3 in November from 50.1 in October, when the PMI posted its first expansion in six months.

Gains in new orders, exports and backlog orders were largely offset by declines in production, producer prices and employment, indicating supply exceeds demand in China's factory sector as the world's second-largest economy is struggling to recover from the slump triggered by property market debt problems.

The CFLP PMI for the non-manufacturing sector surged to 52.2 in December from 50.0 the previous month, coming in much stronger than the median economist call of 50.2. The sharp increase was led by all but one sub-indexes showing higher new orders, exports and job creation as well as faster supplier deliveries but it also indicated the costs were rising for the sector.

More robust business activity was reported by retailers and hotel operators as well as the sports and entertainment industry, prompting the CFLP to project higher consumer spending in the new year, but like other major trading partners of the United States, China also faces uncertainty. U.S. President-elect Donald Trump has threatened to impose a 25% tariff on all goods from Mexico and Canada, and an additional 10% tariff on imports from China, all part of his drive to crack down on illegal drugs and immigration.

As a result of the stellar performance of the services sector, the composite index covering the entire economy also jumped to 52.2 in December from 50.8 in November.

The consensus looks for no change in the official manufacturing PMI at 50.3 from a month ago. Non-manufacturing PMI is seen edging up to 50.2 from 50.0 a month earlier.

China Federation of Logistics and Purchasing (CFLP) Manufacturing Purchasing Managers Index (PMI) is the monthly survey of about 800 purchasing managers that is conducted jointly by CFLP and National Bureau of Statistics (NBS). The questions focus on the health of the manufacturing sector. The numeric result is a diffusion index. A reading above 50 indicates that manufacturing is growing. A reading below 50 indicates contraction.

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 CLFP 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. The survey tends to have a greater impact when it is released prior to the HSBC/Markit manufacturing PMI because the two reports are correlated.