After a marginal improvement in February, operating conditions faced by Chinese manufacturers deteriorated slightly in March.
Total new orders declined for the first time since December, albeit marginally, which contributed to a slower expansion of output. Meanwhile, employment continued to decline in March, with the pace of job shedding picking up to the sharpest in seven months.
On the costs front, deflationary pressures remained strong, with average input prices falling markedly, while prices charged by manufacturers declined for the eighth month running. After adjusting for seasonal factors, the HSBC Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy posted at 49.6 in March, up slightly from an earlier flash reading of 49.2.
However, this was down from 50.7 in February and signalled a renewed deterioration in the health of the sector. The drop in the headline index was partially driven by a fall in new business received by manufacturers during March. Though the rate of contraction was only slight, it was the first time that new orders had declined in three months.
Anecdotal evidence suggested that subdued market conditions had dampened client demand both at home and abroad. Furthermore, new export work fell for the second month running, albeit at a fractional pace. Manufacturing production increased for the third month running in March. However, the rate of expansion eased since February as a result of softer client demand. Staffing levels declined again in March, thereby extending the current trend to 17 months.
Moreover, the rate of job shedding accelerated to the sharpest for seven months, with some companies linking lower workforce numbers to company downsizing policies. Reduced employment contributed to a further rise in backlogs of work in March, though the rate of accumulation was the slowest since last November. Purchasing activity increased only fractionally in March, with a number of companies attributing the slower rate of growth to sufficient stocks at their units. Inventories of both post- and pre-production goods declined in March, following increases in the previous month. Manufacturers continued to report a solid decline in input costs in March, despite the rate of reduction easing to the weakest for six months. Output charges also declined again in March, albeit at the slowest rate since last August.
Comment Commenting on the China Manufacturing PMI™ survey, Annabel Fiddes, Economist at Markit said: “The HSBC China Manufacturing PMI fell back below the neutral 50.0 mark at 49.6 in March, as the sector continues to struggle to gain growth traction. The latest data indicate that domestic and foreign demand remains subdued amid weaker market conditions, which dampened output growth as a result. Meanwhile, company downsizing policies contributed to a further decline in manufacturing employment, with the pace of job shedding the strongest since last summer. Despite the sustained fall in cost burdens, any savings were generally passed on to clients as part of attempts to attract new business, suggesting a further squeeze on profit margins.”
