China Factory Activity Contracts in October as Official PMI Falls to 49.3

China's factory activity contracted in October, falling back below the line that separates growth from shrinkage. The official manufacturing purchasing managers' index dropped to 49.3 from 50.1 in September, according to data from the National Bureau of Statistics released on Saturday, October 31. A reading above 50 signals expansion and a reading below 50 signals contraction.

Reuters called the result a contraction at the fastest pace in three months, with soft demand, including demand for exports, weighing on manufacturers. The reading missed the 50.0 forecast in a Reuters poll of economists. The Wall Street Journal reported the same 49.3 figure and said it undershot the 49.8 forecast in a survey of economists carried by the newspaper. The index had moved back into expansion in September, and October took it below 50 again after that one month above the line.

Production, orders and exports fall together

The detail inside the release pointed the same way as the headline number. The production subindex fell to 49.8 in October from 51.7 in September, a drop of 1.9 points that took factory output from expansion into contraction. Total new orders fell to 49.4 from 50.5. New export orders fell to 48.7 from 50.0, the lowest of the three readings, which means overseas orders weakened in the same month as orders at home.

When production, domestic orders and export orders all sit below 50 at once, the softness runs across the sector rather than sitting in one corner of it. October showed that pattern through the whole manufacturing survey. Every one of the main manufacturing gauges lost ground from September, and every one ended the month on the contraction side of the line.

Services and construction cool as well

The slowdown was not limited to factories. The nonmanufacturing PMI, which covers services and construction, fell to 49.7 in October from 50.2 in September. The services activity subindex eased to 50.0 from 50.2, landing exactly on the line between expansion and contraction. The construction subindex fell to 48.0 from 50.3, the sharpest drop among the nonmanufacturing measures.

The composite PMI output index stood at 49.7 in October, down 1.0 percentage point from September. With that reading, the manufacturing index, the nonmanufacturing index and the composite gauge all sat below 50 in the same month, something the separate figures had pointed to as the detail came together.

The official explanation

Huo Lihui, the chief statistician at the National Bureau of Statistics Service Industry Survey Center, attributed the October manufacturing decline mainly to demand that had been released early ahead of the National Day holiday and to the complex and volatile international environment, according to the bureau's interpretation of the release carried with the data.

The surveys published alongside the release had both expected a softer month, but not one this soft. The Reuters poll forecast 50.0 and the Wall Street Journal survey forecast 49.8, and the official reading came in below both of them.