Behind the acceleration in China's industrial profit growth: profits flat month on month in September, revenue edges down
Goldman Sachs believes the rise in year-on-year industrial profit growth to 14.1% in September was mainly due to base effects. On a seasonally adjusted basis, profits were flat month on month and revenue fell 0.1%. The bank expects both the manufacturing and non-manufacturing PMIs to decline in October.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
China's year-on-year industrial profit growth accelerated markedly in September, mainly reflecting base effects. Goldman Sachs' seasonally adjusted data show profits were flat month on month and revenue edged down, while improved upstream margins supported the overall profit margin.
Why did year-on-year profit growth accelerate while profits did not grow month on month?
Industrial profits rose 14.1% year on year in September, a marked acceleration from 4.9% in August. Goldman Sachs believes this mainly reflected base effects.
According to Goldman Sachs' seasonally adjusted, non-annualised data, profits were flat month on month in September, after rising 0.6% in August. Revenue fell 0.1% month on month, compared with a 0.9% increase in August.
Year-on-year revenue growth also slowed from 7.4% in August to 6.6% in September. Thus, the acceleration in year-on-year profit growth coincided with flat operating momentum and a slight decline in revenue during the month.
Which sectors drove profit growth and margin improvement?
Upstream profits rose 38.4% year on year in September, up from 19.8% in August. The main contributions came from non-ferrous metal smelting and processing and coal mining and washing.
Downstream profits rose 4.4% year on year in September, also up from 0.5% in August, but grew more slowly than upstream profits.
The overall profit margin, calculated by dividing total profits by revenue, edged up in September on a 12-month average basis, mainly driven by an improvement in upstream margins.
In terms of cumulative contributions, the National Bureau of Statistics said the electronics industry contributed 9.6 percentage points to the 15.5% year-on-year increase in industrial profits from 1 through September, while raw materials manufacturing contributed 5.9 percentage points.
What is Goldman Sachs' view of the October PMIs?
Goldman Sachs expects the National Bureau of Statistics manufacturing PMI to fall from 50.1 in September to 49.7 in October. Although the emerging industries PMI rose significantly after seasonal adjustment, the bank noted that residual seasonality typically implies a weaker reading in October.
Goldman Sachs expects the RatingDog manufacturing PMI to fall from 52.1 to 51.7. The indicator is relatively sensitive to export activity, while high-frequency indicators show that export momentum weakened somewhat in October.
For non-manufacturing, Goldman Sachs expects the National Bureau of Statistics PMI to fall from 50.2 to 49.9, consistent with the seasonal tendency for construction and services PMIs to be weaker in October. The RatingDog services PMI is expected to edge down from 51.6 to 51.4.
