China’s factory activity expanded at a slower pace in February than in the previous month, falling to its lowest level in nine months.
Data released by China’s National Bureau of Statistics (NBS) on Sunday (Feb. 28) showed that the official manufacturing purchasing managers’ index (PMI) fell to 50.6 from 51.3 in January.
China’s manufacturing PMI in February, despite being above 50%, was, however, below the median of previous analysts’ estimates. The median estimate from Bloomberg’s survey of economists was 51; the median estimate from Reuters’ composite of 20 analysts was 51.1.
Purchasing managers’ index is a measure of a country’s manufacturing industry “medical examination”, is to reflect the manufacturing industry in production, new orders, commodity prices, inventory, employees, orders for delivery, new export orders and imports and other eight aspects of the status of the index.
The PMI is expressed as a percentage, often using 50% as the cut-off point for economic strength: when the index is above 50%, it is interpreted as a sign of economic expansion.
For the reason of the slowdown of China’s manufacturing activity in February, Zhao Qinghe, a senior statistician of the Service Industry Survey Center of the National Bureau of Statistics of China, explained on Sunday that “the Chinese New Year holiday fell in mid-February this year, and the holiday factor had a greater impact on the production and operation of enterprises this month, and the market activity of the manufacturing industry decreased, and the prosperity level dropped compared with last month.
Zhao Qinghe said that the retail industry, catering and entertainment industry is still relatively active. This is because this year’s Spring Festival because of the Epidemic government advocates “local New Year”, stay in the local workers turned to the workplace near the stores, restaurants and cinemas to spend.
The index reflecting the change in new export orders of enterprises in February was 48.8, down from 50.2 in January. the reason for the decrease in export orders of enterprises in February is believed to be the decline in overseas demand. Zhao Qinghe said that from the market expectations, the index of production and business activity expectations of export enterprises is very optimistic, at 60.8%. He believes that this indicates that most manufacturing export enterprises still remain optimistic about the recent foreign trade situation.
In the non-manufacturing sector, the index reflecting the activities of construction and service industries dropped to 51.4 in February, while the median estimate was 52.
It is worth noting that in recent months, rising commodity prices have pushed up input costs, and in February, the index measuring input prices remained above 60 for the fourth consecutive month; the employment sub-index of the official purchasing managers’ index (PMI) was 48.1 in February, down from 48.4 in January, showing that companies are laying off more workers and at a faster pace.
Despite this, some manufacturing companies are seeing increasing pressure from rising labor costs and labor shortages, Zhao Qinghe said.
Typically, stagflation arises when high Inflation and high unemployment occur together and are accompanied by an economic downturn. One possible scenario is that when inflation is very high, the cost of living for workers rises and therefore business owners are asked to increase wages, but business owners may not be able to afford such high payroll costs and therefore decide to lay off workers and reduce production. Layoffs lead to a rise in unemployment, while production cuts lead to a weak supply of goods, further pushing up prices, which leads to a situation where high inflation and high unemployment coexist and the economy is in crisis.
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