China’s factory outlook eases again, services delayed

Photographer: Qilai Shen / Bloomberg

An official measure of China’s manufacturing output declined for a second month in January, while activity in the services sector declined to its lowest score since March.

• According to data released by the National Bureau of Statistics, the official index for executive purchasing managers fell to 51.3 from 51.9 in December.
• The non-manufacturing meter dropped to 55.4 in January to 52.4. It was the biggest drop since February last year, when China closed to contain Covid-19. Readings above 50 indicate the expansion of production from the previous month.

Important insights

• China’s recovery from the pandemic accelerated towards the end of 2020, fueled by an export boom for medical and electronic goods.
• Economists had expected some weakness in the PMI ahead of the lunar New Year holiday in February. Aside from a seasonal drop in production, the strict travel restrictions and virus control measures following recent outbreaks of Covid-19 in China mean that many workers will not take the annual trip back home, which is likely to lead to poorer spending on gifts and eating out.
• “These measures will be detrimental to the recovery in the services sector, particularly the hospitality industry,” said economists at Nomura Holdings Inc. led by Lu Ting in a report written before the data was released. However, it could “give a small boost to the production and construction of industries in southern China, as workers would remain in workplaces.”
• In general, the new controls will affect economic growth in the first quarter, they write.

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• A sub-index of new export orders for factories fell to 50.2, while one for new orders was lower at 52.3
• A sub-index of manufacturing in manufacturing fell to 48.4, while non-industrial employment declined to 47.8

– Assisted by James Mayger and Lin Zhu

(Updates to the chart, economists’ comments and more details.)