China’s CFLP non-manufacturing PMI plummeted to a paltry 53.2 in November from a robust 60.5 in October. November’s number marked the lowest since February’s low of 46.4. The drop was led by a significant decline in new orders to 50.1 from 56.7 in October as the transportation and construction industries contracted. Input prices continued to rise strongly while prices charged edged higher.
Although the number is pretty weak it should be seen in context. I have warned you to expect a very weak number as a result of the seasonal pattern that emerged over the past two years.
Sources: CFLP; Plexus Asset Management.
What is important, though, is that the PMI has not fallen below the level of a year ago. If it had fallen below it would have indicated a weakening non-manufacturing/services sector. The current PMI therefore indicates to me that the growth in the non-manufacturing sector remains relatively strong. From a seasonal point of view growth is expected to accelerate in December. Failure to do so will indicate a significant weakening in the sector. It is clear that I am not alone in following the seasonal trend as the currency and financial markets did not react noticeably to the number.
Looking ahead, I remain uneasy about how things will pan out in China given the stricter monetary policies of the PBoC.
