China’s Manufacturing Expands While Employment Remains Weak

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China’s factory activity expanded in December as production and sales picked up, though employment remained weak, a private gauge showed Tuesday. 

The Caixin Manufacturing Purchasing Managers’ Index rose to 50.9 last month from November’s 49.9, Caixin and IHS Markit said in a statement. Economists had expected a marginal improvement to 50, the dividing line between expansion and contraction. 

Output rose at the fastest pace in the past year, supported by improved market conditions and stronger customer demand, while inflation eased, according to the statement. Employment fell for the fifth month in a row, with the sub-index dropping to 48.7, the weakest since February last year. 

“Manufacturing demand and supply improved in December with easing inflationary pressure,” said Wang Zhe, a senior economist at Caixin Insight Group, which released the data. “But the job market was still under pressure and businesses were less optimistic, indicating unstable economic recovery.”

Total new orders increased as virus flare-ups were largely brought under control, while external demand was lackluster, according to the statement. Factory inflation eased from the peak, with the average input costs rising at the weakest rate for 19 months in December.

What Bloomberg’s Economists Says...

The data “pointed to stabilization in the economy in December, but the underlying components add a note of caution. The jump in the production and demand readings were inconsistent with the official PMI data, which showed a largely stable situation, and high-frequency indicators, which have yet to show a clear pickup in activity.”

-- Chang Shu and Eric Zhu

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The official PMI data released last week also showed a slight acceleration in business activity from the previous month, though employment remained under pressure. The Caixin index surveys mainly smaller and private companies, while the official PMI mostly covers larger, state-owned enterprises. 

“Official and Caixin readings of manufacturing employment and NBS services sectors’ employment all stayed in contraction territory, suggesting ongoing job market pressure and sluggish employment conditions that weighs on income growth and spending, calling for policy support,” said Bruce Pang, head of macro-economy and strategy research at China Renaissance Securities Hong Kong Ltd.

China’s economy is facing rising pressure on multiple fronts, with policy makers focusing efforts on stabilizing growth with “proactive” policies. The housing market is struggling, local government finances are being hit by weak land sales and there has been a series of recent Covid-19 outbreaks, including one which caused authorities to lock down the city of Xi’an. 

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With assistance from Bloomberg