China Manufacturing Factor Floor

Chart of the Day: Chinese Manufacturing Turns Negative – Recession Going Global?

China’s factory activity unexpectedly shrank in July as sporadic Covid outbreaks disrupted the sector and the slowing global economy weighed on demand.

The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, China’s National Bureau of Statistics said on Sunday. That was weaker than forecast, below the 50-point mark separating expansion from contraction. Indexes tracking output and new orders fell during July, with the sharpest contraction in activity coming in energy-intensive industries, such as petrol, coking coal, and ferrous metals.

What are PMIs? The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It consists of a diffusion index that summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. The purpose of the PMI is to provide information about current and future business conditions to company decision-makers, analysts, and investors. A PMI above 50 represents an expansion when compared with the previous month. A PMI reading under 50 represents a contraction.

Caixin China General Manufacturing (PMI) also showed a sharp contraction in the Chinese economy for the month of July. See this in the chart below and learn more here.

China PMI 2022-07One can also see that exports are slowing to their customers in the West. What may be the most interesting in the Caixin China PMIs is the new low in the employment index, as shown below. Coupled with the alleged recent unrest with Chinese banking failures, an unemployment downturn would not be a welcomed event.

China PMI Details 2022-07

As reported in The Guardian, Bruce Pang, the chief economist and head of research at Jones Lang LaSalle, said the fall in China’s manufacturing PMI showed that its economic recovery was fragile after GDP fell in the second quarter of the year. “The challenges to China’s GDP growth in the third quarter could be bigger than expected earlier,” Pang said.

These current Chinese PMIs are not falling off the cliff, but given that China’s customers (e.g., US and EU) are heading into contraction, the trend for China is clearly down. These Chinese PMIs are on the back of already troubling economic data (e.g., falling GDP, credit bubbles, and falling housing markets) coming out of China.

Is the global economy going into recession as the US has done? See here one view of what could be happening in the US economy.

What could go wrong?

See more Chart of the Day posts.

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 RWR original article syndication source.

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Written by Tom Williams

Born down on the farm in America's Midwest, my early life was spent climbing the ladder via a long career in information technology. Starting as a technician, and after earning a degree going to night school, I eventually found a place working at ATT Bell Laboratories as a software engineer.

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