During the last week of July, market expectations for the upcoming China PMI began to fall, somewhat dramatically.
On July 31, the PMI did in fact fall from 52.1 for June to 51.2 for July. Importantly, the Index remained above the contraction / expansion 50 line, as it has since March 2009. As with most of the economic numbers from China, there is a seasonal effect in the numbers. For the past five years, July has been a month of weakening for PMI. Historically, August has been a marginal gainer. Within this month's report, the employment, export, and new orders components rose from June levels.
The resource trade remains viable in the second half of 2010; clearly, China is a significant contributor to that theme. Keep in mind that China maintains more monetary policy flexibility than any G-3 economy. If the "slowdown" begins to look like a "meltdown," the Chinese Central Bank will quickly move toward easing.
CHINA PMI 1/31/05-7/31/10