China May PMI Manufacturing
China’s purchasing managers index (Figure 1) was reported at 50.8 for May, ahead of April’s 50.4 and consensus estimates of 50.7. This is the highest monthly figure since December 2013’s 51.0 reading.
In recent months, Chinese President Xi Jinping’s administration has expedited the pace of government spending and transportation investment to stimulate growth. There is also a clear effort in place to cheapen China’s currency (Figure 2).
The official 2014 domestic growth target set forth by the government remains 7.5%. First quarter GDP moderated to 7.4% from 7.7% for the fourth quarter of 2013. Chinese 2014 GDP is in jeopardy of being its weakest in over 20 years.
While the report is the strongest for 2014, there is not enough evidence within the composition of the indices for investors expecting a sharp acceleration in China’s economic growth to make significant portfolio changes.
Let’s take a look at the composition of the report….
- New orders recorded a 52.3, the highest reading since November 2013
- New export orders remain sluggish and below 50, at 49.3
- The employment sub-index actually fell to 48.2, a 3-month low
- Input prices jumped to 50.0, the highest reading since December 2013’s 52.6
- Imports at 49.0 matched December 2013’s 6-month high
Figure 1: China PMI Manufacturing Index, June 2010 to June 2014
Figure 2: Chinese Spot Renminbi, June 2010 to June 2014