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China’s manufacturing sector may have been in even worse shape in February than what the official data show, according to Nomura.
The way the headline number is calculated means that the situation was likely below the record-low 35.7 reported by the statistics bureau, according to a note to clients from Lu Ting, chief China economist at Nomura Holdings Inc. in Hong Kong. That’s because the lengthier delivery times due to the coronavirus shutdowns and quarantines are actually pushing up the headline number, he wrote.
Longer delivery times usually indicate higher demand and thus better business conditions. However, at a time when lock-downs and travel bans have significantly disrupted business activities, it is more indicative of bad logistics.
“Put differently, longer delivery times were due to travel bans instead of good business,” according to Lu.
That sub-index accounts for 15% of the headline PMI, and if you adjust for this distortion by assuming the supplier sub-index reading in February was the same as in January, the result is a February manufacturing PMI at 33, Lu wrote.
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