The growth of China's manufacturing industry in August was the slowest in 14 months and confirms fears that China's economy will continue to decelerate for the remainder of the year.
The private sector Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) tumbled to 50.6 in August from 50.8 in July, a drop that matched the expectations of economists. A PMI reading above 50 indicates an expansion, while a reading below 50 indicates a contraction in manufacturing. While the August PMI remained above the 50, it was the weakest performance since June 2017.
Manufacturing continued to weaken amid soft demand despite a stable supply side. The supply side stability, however, can't be sustained because of weak demand, said Zhengsheng Zhong, director of Macroeconomic Analysis at CEBM Group Ltd, a firm that offers China-based institutional investment research.
China's economy is now facing relatively obvious downward pressure, said Caixin and Markit.
In a statement, both firms said China's exports fell for the fifth straight month in August. Overall business confidence was also low. A number of firms are gravely concerned about the impact of the ongoing trade war with the United States and relatively weak market conditions.
The Caixin and Markit survey also found that employment is falling amid inflationary pressures on business firms, which also reported increases in both input and output costs in August. Taken together, these indicators reinforce the perception that China's economy is cooling off at the wrong time and in the face of a worsening trade war with the United States.
The gloomy findings also validate the views that China's economy will decelerate further in coming months. These developments, however, will likely goad Beijing into spending more and taking other steps to boost flagging growth.
On the bright side, China reported that factory activity was higher than expected in August. The country's official Purchasing Manager's Index inched upward to 51.3 in August from 51.2 in July.
The downturn in August reported by both the private Caixin/Markit PMI and the official government PMI continues the downward slope taken by the indicators for July.
China economic data for July indicates the country is already suffering from the U.S. tariffs. Both the official and a private PMI reading by Caixin and IHS Markit decelerated in July. The Caixin/Markit index fell to an eight-month low due to a drop in exports.
Domestic headwinds also did their part in the economic slowdown. This was likely due to the deceleration in credit growth and infrastructure investment.
