China PMI — One Month Is Not a Trend

May 1, 2012 by Douglas A. McIntyre

China’s central government statistics agency said the country’s purchasing managers index rose to 53.3 from a reading of 53.1 in March. The figure could signal an expansion, but only an extremely modest one. The press and analysts pointed to the number as proof that China’s factories and export machine are not in trouble the way they seemed to be a quarter ago. But the economic trouble in Europe is too great to overcome when coupled with the spotty recovery in the United States.

Other factors make the figures unimpressive. One is the time of year the data was collected. “The peak reading in a year usually occurs in April so the actual strength of China’s manufacturing sector was probably not as resilient as indicated,” said Yao Wei, a Hong Kong-based economist with Societe Generale told Bloomberg. Another is that numbers issued by the People’s Republic have a reputation for inaccuracy, which makes it hard to understand how the Chinese economy is doing.

The European Union remains the world’s largest region based on gross domestic product. But more and more countries that are part of the alliance have slipped into recession. The nominal GDP of the European Union was nearly $17 trillion last year, compared to about $15 trillion in the U.S. The recession in Europe is marked by high unemployment and low factory output. That means China’s ability to sell consumer goods and more-expensive business goods continues to be undermined. The problem is magnified by the propensity of EU nations to trade among themselves because of the common currency.

U.S. GDP was up only 2.2% in the first quarter. That was below the 3% improvement in the final quarter of 2011, and well below the estimates of most economists. Job creation has softened, based on data such as weekly jobless claims and anecdotal evidence from private companies. The U.S. recovery, which was supposed to be marked by 3% or better GDP growth, has not materialized. And with each month of tepid numbers that passes, a sharp improvement for the year becomes unlikely. Prospects for the U.S. economy will be hurt also by the battle between the two political parties and a lack of budget and tax plans ahead of the national election, a number of experts say. Uncertainly about the outcome of the election make it hard for taxpayers and businesses to determine what their tax obligations will be next year. That uncertainty continues to freeze some consumption activity.

There is not enough growth in the markets China relies on for its manufacturing sector’s health. Actually, many of these markets are in retreat.

Douglas A. McIntyre

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