China Factory PMI Suggests Economic Momentum Dialed Back in July

(Bloomberg) -- China’s official factory gauge dialed back a notch in July as a push by authorities to curb financial risks spreads.

Key Points

• The manufacturing purchasing managers index slowed to 51.4 in July, missing 51.5 forecast in Bloomberg survey and down from 51.7 in June
• The non-manufacturing PMI was 54.5 versus 54.9 a month earlier
• Numbers higher than 50 indicate improving conditions

Big Picture

The world’s second-largest economy performed more strongly than analysts had anticipated in the first half, buoyed by a turnaround for exports and resilient domestic demand. A statistics official attributed the slowdown in manufacturing activities in July to high temperatures in some regions and floods in others, while some factories had regular equipment maintenance. Challenges lie ahead for the second half as policy makers slow the pace of credit expansion and vow to tackle excessive leverage.

Economist Takeaways

"The economy in the second half will likely slow down gradually," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "With the deleveraging in process, we will see gradual lagged effects on the economy," which will show up more clearly at the end of the third quarter, he said.

"July’s PMI signals a slight softening of the manufacturing sector," said Raymond Yeung, the Hong Kong-based chief economist at Australia & New Zealand Banking Group Ltd. "External demand will likely drop in the summer and third quarter GDP growth isn’t expected to hit 6.9 percent. But we aren’t worried about the decline today."

The Details

• Reading of input prices accelerates to 57.9, output prices climbs to 52.7
• New export orders index slips to 50.9, manufacturing PMI shows
• Large firms more optimistic, confidence slides for small and medium-sized enterprises
• The statistics official says companies kept increasing procurement and have higher confidence in future development. Almost 40 percent of companies said labor costs are rising, according to the official.

--With assistance from Brett Miller

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net.

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeffrey Black at jblack25@bloomberg.net, Daniel Ten Kate

With assistance from Xiaoqing Pi, Yinan Zhao