China PMI drops to lowest in 32 months

This is the news out of China today:

China’s Purchasing Managers’ Index (PMI) dropped to 50.4 percent in October after rising for two consecutive months, down 0.8 percentage points from September, the China Federation of Logistics and Purchasing (CFLP) said Tuesday.

The CFLP report said the drop indicated the country’s economic growth might continue to slow down in the fourth quarter but the trend of a moderate economic increase would not change fundamentally.

It estimated the country’s gross domestic product, or GDP, would grow around 9.2 percent in 2011.

PMI is a gauge of manufacturing expansion. A reading below 50 indicates contraction from the previous month, while a reading above 50 indicates expansion. China’s PMI had declined for four months in a row to a low of 50.7 percent in July before rebounding to 50.9 percent in August.

The article doesn’t say this but 50.4 is the lowest number since early 2009, during the depths of the recession. So this number, shades above contraction, is a big deal. In fact, the sub-index for new export orders index is contracting, declining to 48.6 from 50.9 last month, meaning slowing economic growth in the developed economies is now impacting China as well.

The Chinese PMI hasn’t fallen below the 50 contraction level since February 2009. Next month we will see where the momentum is. If it’s to the downside, we might see a number below 50.

Source: China’s PMI drops to 50.4 percent in October – Xinhua


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.