China’s factory outlook is getting easier again, services are slowing down

An official gauge of China’s manufacturing output fell for a second month in January, while service activity slowed to its lowest level since March.

The official index of manufacturing purchasing managers fell to 51.3 from 51.9 in December, according to data released Sunday by the National Bureau of Statistics.
The non-production meter fell from 55.7 to 52.4 in January. That was the biggest drop since February last year, when China locked itself in to contain Covid-19. Measurements above 50 indicate an increase in production from the previous month.

The growth rate slowed in January, with services falling the most

Source: National Bureau of Statistics

China’s recovery from the pandemic accelerated towards the end of 2020, fueled by an export boom for medical and electronic goods.
Economists expected a weak PMI in the run-up to 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 that many workers will not make the annual trip home, which will likely result in lower spending on gifts and dining out.
“These measures will hamper the recovery in the services sector, especially the hospitality industry,” wrote economists from Nomura Holdings Inc. led by Lu Ting in a report before the data was released. However, they could “provide a small boost to industrial production and construction in southern China, as workers would remain at work.”
Overall, the new management measures will slow down economic growth in the first quarter, they wrote.

One sub-index of new factory export orders fell to 50.2, while one for new orders was lower at 52.3
A sub-index of industrial employment fell to 48.4, while non-industrial employment fell to 47.8

– With help from James Mayger and Lin Zhu

(Updates with graphics, commentary from economists and more details everywhere.)