China on Monday announced that manufacturing activity expanded in the month of August as the country continued to recover from the coronavirus pandemic.
The official manufacturing Purchasing Manager’s Index (PMI) for the month of August came in at 51.0 as compared to 51.1 in July, according to the National Bureau of Statistics.
However, the pace of expansion missed expectations. Analysts polled by Reuters had expected August PMI to come in at 51.2.
PMI readings above 50 indicate expansion, while those below that signal contraction. PMI readings are sequential and indicate on-month expansion or contraction.
Heavy floods in south China have also impacted manufacturing activity, Zhao Qinghe, a senior statistician with the bureau, said in a statement.
Some companies in Chongqing and Sichuan reported that the procurement cycle of raw materials has been prolonged. The number of orders and production also fell, Zhao wrote, according to a CNBC translation.
Growth in services moved at a faster clip in August with the official non-manufacturing PMI coming in at 55.2 as compared to 54.2 in July.
Zhao from the National Bureau of Statistics said in his report that demand was gradually recovering, with new orders for products such as pharmaceuticals and electrical machinery and equipment moving at a faster pace in August than in July. Exports were also improving in general, added the bureau.
China’s manufacturing sector was battered earlier this year as factories shut due to large-scale lockdowns to contain the coronavirus pandemic.
But recent data out of China paint a picture of recovery, with expansion in manufacturing activity and industrial output rising for the fourth straight month in July.
“Manufacturing rebounded most quickly. It didn’t require as much social distancing, it wasn’t as sensitive to social distancing so activity was rebounding more quickly there, and as such is now decelerating after the initial strong rebound,” said Andrew Tilton, chief Asia Pacific economist at Goldman Sachs.
The recovery in China is driven partly by government stimulus spurring infrastructure investment and resilient exports as medical supplies shipments jumped in the first half of the year.
“It’s not too surprising that the manufacturing PMI has started to level off since growth in industry has already returned to its pre-virus level,” Julian Evans-Pritchard, senior China economist at Capital Economics, said in a note following the data release.
However, there could be further upside to industrial activity as fiscal support will be stepped up in the coming months, he added.
“Meanwhile, it’s encouraging that the recovery is broadening out, with service sector activity now playing catch-up with industry,” added Evans-Pritchard. “This is consistent with our view that an investment-led rebound would eventually also shore up consumer sentiment and household spending, keeping the overall economic recovery on track.”
Another set of factory data will be released on Tuesday by Caixin and IHS Markit. This private survey features a bigger mix of small- and medium-sized firms. In comparison, the official PMI survey typically polls a large proportion of big businesses and state-owned companies.
— CNBC’s Weizhen Tan contributed to this report.