Goldman Sachs: China’s October PMIs both fall: production and construction weaken as manufacturing margins remain under pressure

How much weaker than expected were the October PMIs?

The official manufacturing PMI fell from 50.1 in September to 49.3 in October, below Goldman Sachs’ forecast of 49.7 and the Bloomberg survey consensus of 49.9. The non-manufacturing PMI fell from 50.2 to 49.7, also below Goldman Sachs’ forecast of 49.9 and the consensus of 50.0.
Goldman Sachs said the decline in the manufacturing PMI partly reflected residual seasonality: over the past year, the first month of each quarter typically recorded the lowest reading of that quarter. Overall, the October data still pointed to slowing activity in manufacturing, services and construction.

Among the main components, the production index fell the most, from 51.7 in September to 49.8 in October; the new orders index fell from 50.5 to 49.4. The new export orders index also fell, from 50.0 to 48.7, indicating lower survey readings for both domestic and external orders.
Businesses of all sizes saw declines: the PMI for large enterprises fell from 50.6 to 50.2, that for medium-sized enterprises from 49.7 to 48.4, and that for small enterprises from 48.9 to 47.5.
Divergence across industries persisted. The National Bureau of Statistics noted that the production and new orders indices for railway, shipbuilding and aerospace equipment, as well as computer, communications and electronic equipment, were both above 53; activity weakened in textiles, non-metallic mineral products, and non-ferrous metal smelting and rolling.

The services PMI edged down from 50.2 in September to 50.0 in October. Industries associated with the National Day holiday, including rail transport, accommodation, and culture, sports and entertainment, remained above 50, but capital markets services were below 50 and were the main drag behind the modest decline in the services index.
The construction PMI fell from 50.3 to 48.0; the decline occurred against a backdrop of accelerated disbursement in October of 800 billion yuan in new policy-based financial instrument funds for the year.

The manufacturing input price index fell from 60.8 in September to 56.8 in October, while the output price index fell from 54.0 to 51.7. The National Bureau of Statistics attributed both declines to recent falls in commodity prices, including non-ferrous metals.
The input price index remained well above the output price index, leading Goldman Sachs to conclude that manufacturing margins remained under pressure.