China: Shocking drop in manufacturing gauge

China manufacturing PMI data fell to 49 from 50.2, falling into contraction territory. The Services PMI index, on the other hand, decreased from 54.7 to 53.8, in line with the expectations. China’s PMIs suggest the economy is taking a hit, as mortgage boycotts put more pressure on industries and intensify the housing collapse. The recovery in Covid-19 cases may have damaged confidence in the service sector.

If we look at the sub-items; On the manufacturing side, the expectations index fell to 52, the lowest level since March 2020, while new orders fell to 48.5 from 50.4. The input price index, on the other hand, dropped sharply from 52 to 40.4. The contraction in export orders intensified and fell from 49.5 to 47.4. The employment index is at 48.6. On the service sector side, the employment index rose to 46.7, while the construction sub-index rose from 56.6 to 59.2. Despite the mortgage boycott, the acceleration in government-led investment kept the indicator above 50.

China’s real estate turmoil appears to have affected July’s PMIs, signaling slower growth for the Chinese economy. This will reflect reduced production of construction materials and a slowdown in construction. High frequency indicators point down. Average weekly car sales fell below pre-pandemic levels in the first three weeks of the month, after the increase in late June. Home sales followed a similar trend.

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