China’s Caixin PMI Manufacturing registered a modest dip in September, dropping to 50.6 from previous 51.0. This reveals a deceleration in growth of the manufacturing sector, albeit still remaining in the expansionary range.
According to the report, the second consecutive month saw an increase in both production and new orders. However, one area of concern is sharp acceleration in input cost inflation, which has reached its highest point in eight months. Despite the ongoing growth, employment scenario seems to be losing steam, with a reported decline, mirroring subdued business confidence.
The situation isn’t brighter on the services front. Caixin PMI Services for September recorded a fall from 51.8 to 50.2, marking the lowest value over the past nine months of growth. Though there’s a slight increase in services activity, it comes amid decelerating sales growth. Employment in the sector expanded, but only marginally. This subdued performance correlates with the dip in business confidence, which is currently at a ten-month low.
Wang Zhe, Senior Economist at Caixin Insight Group, elaborated on the data, stating, “Both manufacturing and services PMIs tumbled despite remaining in expansionary territory, with the latter falling at a more pronounced rate.”
He further pointed out the concerning trend in the manufacturing sector’s employment dynamics, which has affected the overall job market. Despite limited growth, output prices witnessed a sharp increase, marking their most rapid ascent since March 2022.
Zhe also commented on the broader economic context: “Over the past few months, Beijing has introduced multiple policies aimed at encouraging consumption, expanding investment and stabilizing expectations. Various important economic indicators have shown marginal improvement, and the macroeconomy has shown signs of stabilization. However, the economic recovery has yet to find a solid footing, with insufficient domestic demand, external uncertainties, and pressure on the job market.”
To sum up, while China’s economic indicators point to marginal improvement, the underlying data suggests there is a long road ahead to achieve a stable and robust economic recovery. The recent PMI readings, in particular, indicate potential headwinds in both the manufacturing and services sectors.
Full China Caixin PMI manufacturing and services releases.
BoJ opinions: A blend of caution and optimism
Summary of Opinions of BoJ’s September 21-22 meeting reiterated the general stance that ultra-loose monetary policy remains necessary for now. Yet, there was an undercurrent of optimism, with some members seeing achieve of price target “in sight”.
The collective view reinforced that the “sustainable and stable achievement of the price stability target, accompanied by wage increases, has not yet come in sight.” Given this scenario, the summary stressed the necessity to “patiently continue with monetary easing under yield curve control.”
Underpinning the continued focus on wages, one member stated it is “necessary” to uphold the “momentum for wage hikes through continuation of monetary easing.” Also, in order to achieve inflation target of 2 percent in a sustainable manner, it is necessary that “wage increases take root.”
However, amid the cautious tones, rays of optimism emerged. One member opined that “Japan’s economy is getting closer to achieving the price stability target, although there is somewhat of a distance to go.” Providing a potential timeline for evaluating the price stability objective, focus is now on “the second half of fiscal 2023” especially considering the wage growth prospects for 2024.
Furthering this optimism, another viewpoint conveyed confidence, indicating that “Achievement of 2 percent inflation in a sustainable and stable manner seems to have clearly come in sight.” This perspective also hinted at a clearer outcome by “January to March of next year.”
Full BoJ Summary of Opinions here.