China’s factory outlook is relaxing again and services are slowing down

Photographer: Qilai Shen / Bloomberg

An official measure of China’s manufacturing output fell for a second month in January, while service sector activity declined to the lowest reading since March.

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

Key statistics

• China’s recovery from the pandemic picked up pace towards the end of 2020, driven by a boom in exports of medical and electronic products.
• Economists expected some weakness in the PMI ahead of the lunar New Year holidays in February. Aside from a seasonal drop in production, strict travel restrictions and virus control measures following the recent outbreaks of Covid-19 in China mean that many workers do not make the annual trip back home, which it will probably result in a lower spending on gifts and dinners.
• “These measures will affect the recovery of the services sector, especially the hospitality industry,” economists from Nomura Holdings Inc. wrote in a report. led by Lu Ting in a report before publishing the data. However, “they can provide a small boost to industrial production and construction in southern China, as workers would remain in the jobs.”
• Overall, new control measures will drag economic growth in the first quarter, they wrote.

Get more

• A subscript of new export orders for factories fell to 50.2, while one of new orders fell to 52.3
• A sub-index of manufacturing employment fell to 48.4, while non-manufacturing employment slowed to 47.8

– With the assistance of James Mayger and Lin Zhu

(Updates with graphs, comments from economists and more details.)