The US and (official) China May PMIs surprised on the downside and upside respectively. We have been surprised by the resilience of the US data in the last few weeks in what should be the weakest quarter of the year for growth. In that respect the May PMI didn’t disappoint. Meanwhile in China, their May PMI is the first good bit of news we have had in a while, supporting our story of a modest cyclical rebound.
In the US the
manufacturing PMI fell to 49.0 in May, down from 50.7 in April. Average market expectations had been
expecting a rise to 51.0. Some of the
regional manufacturing surveys had been weak recently, so this result is not
inconsistent with the messages from around the country.
All the major sub-indices
were weaker in the month with production, new orders, exports and imports all
lower. The employment index was also
softer but only a tad, coming in at 50.1 from 50.2 in April. Inventories bucked the trend with a rise after
falling in each of the last three months, but rising inventories itself a sign
of weakness and perhaps a precursor to some softer activity data ahead.
As I said at the
start, that’s not inconsistent with our view that the June quarter would be the
weakest quarter of the year. The March
quarter benefitted from the postponement of activity at the end of last year on
the back of the fiscal cliff uncertainty and super storm Sandy. The June quarter was going to be the period
in which the full force of fiscal drag would make itself known: we expect
annualised growth of 1.5% in the June quarter, down from the 2.4% recorded in
the March quarter. We continue to expect
a stronger second half of the year as the effect of fiscal drag wanes and as
the housing recovery continues.
In China the official
PMI for May came in at 50.8, a slight improvement in the 50.6 recorded for
April and better than average market expectations of a decline to 50.0. The improvement in the official PMI contrasts
with the trend decline in the HSBC PMI that dipped down to 49.2 in May. Remember the official PMI captures large enterprises
(SOEs) while the HSBC index captures smaller enterprises.
index was the major mover, rising from 52.6 in April to 53.3 in May. The new orders index move was more subdued
rising from 51.7 to 51.8 over the month, while new export orders rose from 48.6
to 49.4. On the other hand, inventories
of finished goods rose from 47.7 to 48.6.
As with the US, rising inventories is not a sign of strength. On that note the employment index also slipped
slightly. The other notable component
was the purchase price index which rebounded from 40.1 to 45.1 over the month,
indicative of some normalisation of input prices.
The best news was
the rise in the import index, which rose from 48.7 to 50.3. This index has been below 50 since April
2012. Whether this is export (China
exports have a high imported component) or domestic demand related remains to
be seen, but we’ll take it either way. While
it’s dangerous to read too much into one monthly PMI, this result makes me more
comfortable with my expectation that annual China GDP growth will be higher in
the year to June than it was in the year to March.