China’s Factory Outlook Eases Again, Services Slow Down

(Bloomberg) -- An official gauge of China’s manufacturing output slipped for a second month in January, while activity in the services sector slowed to the lowest reading since March.

• The official manufacturing purchasing managers’ index fell to 51.3 from 51.9 in December, according to data released Sunday by the National Bureau of Statistics.
• The non-manufacturing gauge dropped to 52.4 from 55.7 in January. That was the biggest fall since February last year, when China locked down to contain Covid-19. Readings above 50 indicate expansion in output from the previous month.

Key Insights

• China’s recovery from the pandemic gathered pace toward the end of 2020, fueled by an export boom for medical and electronic goods.
• Economists expected some weakness in the PMI ahead of the Lunar New Year holiday in February. Aside from a seasonal drop in production, strict travel restrictions and virus control measures following recent Covid-19 outbreaks in China mean many workers won’t make the annual trip back home, which will likely result in weaker spending on gifts and dining out.
• “These measures will impair the recovery in the services sector, especially the hospitality industry,” economists at Nomura Holdings Inc. led by Lu Ting wrote in a report before the data were released. However, they “may provide a small boost to industrial production and construction in South China, as workers would remain at workplaces.”
• Overall, the new control measures will drag on economic growth in the first quarter, they wrote.

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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 employment declined to 48.4, while non-manufacturing employment slowed to 47.8

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