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Spanish Services PMI Reached its Highest Level Since Almost 2 Years

In line with better data published for the month of May, (unemployment claims, PMI manufacturing), Services PMI rose to 47.3 in May up from 44.4 in April. It has been the best level since 23 months. A reading below 50 indicates contraction which means thay Spanish economy is just getting less worse. Neverthless, the last data still support government’s forecast of an economic recovery by the end of the year.


More detail from Markit:


“The ongoing decline in the Spanish service sector showed signs of easing in May as activity, new business and employment all fell at slower rates. Meanwhile, input costs rose only marginally and companies continued to lower their output prices at a marked pace.”


Commenting on the Spanish Services PMI survey data, Andrew Harker, economist at Markit and author of the report said:


“Although signalling a continuation of the decline in the sector, the latest Services PMI data for Spain provide some cause for optimism. Activity moved closer to stabilisation than at any time since mid-2011. Following on from a similar trend in the manufacturing PMI data, maybe we are starting to see some light at the end of the tunnel. Developments in the wider euro area economy over the next few months will probably be key to whether this turns out to be a false dawn or the start of a sustained recovery.”

China PMI Composite Signaled Slowdown in May

This morning, HSBC & Markit published both Services and Composite PMI for May. A reading above 50 indicates expansion.


The services activity which accounted for 46% of China’s GDP in 2012 stabilized at relatively low level of growth in May. Indded, the PMI for the services industry inched up to 51.2, the second lowest reading since August 2011.


Taking into account the manufacturing activity, the Composite PMI suggested only a slight expansion in May as the index posted 50.9 down from 51.1 in April. It indicated the weakest expansion since last October.


From the HSBC & Markit:


“Business activity at service providers increased at a modest pace. The latter was signaled by the HSBC China Services Business Activity Index, which posted 51.2 in May. This was broadly unchanged from April’s 51.1 and was one of the lowest readings in the series history”…”HSBC China Composite HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled only a slight expansion of output during May. The HSBC China Composite Output Index pos ted 50.9, and down from 51.1 in April, indicated the weakest expansion in business activity since last October.”


These two surveys add dome concerns over the loss of momentumm recorded since the beginning of the year. Remind that in Q1 2013, GDP slowed to 7.7% YoY down from 7.9% in Q4 2012. Note that fortunately, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC saw some supportive factors in the coming months:


“The improving property market and Beijing’s renewed effort on expanding VAT tax reform nationwide could lend some support for the service sector’s future development.”

Finally, trade balance, industrial production, and retail sales for May will be published later this week.

Chinese Official Manufacturing PMI Rebounded in May, Beating Expectations

Official Chinese manufacturing PMI climbed to 50.8 (up from 50.6 in April) beating expectations for a fall to 50.0 (or even lower). May was the eight consecutive month that the official PMI was above 50, a level that indicates expansion in the manufacturing sector. A reading below 50 indicates contraction.
This rebound is mainly due to the “Output” component which increased to 53.3 in May against 52.6 the previous month. At the opposite, “Employment” was the only component down from April at 48.8.
Here is the table from the National Bureau of Statistics of China:


April May
PMI 50.6 50.8
New Orders 51.7 51.8
New Export Orders 48.6 49.4
Output 52.6 53.3
Inventory of Finished Goods 47.7 48.6
Inventory of Raw Materials 47.5 47.6
Employment 49.0 48.8
Input Prices 40.1 45.1

My view:
1/ The official data contrasted with the preliminary reading of manufacturing PMI released by HSBC which showed that Chinese manufacturing activity contracted for the first time in seven months in the first few weeks of May. This distorsion can by explained by three factors:

a/ The HSBC survey focuses more on small and medium-sized firms in the private sector as compared with the official one. Generally, these companies have less access to credit and more difficulties to export.

b/ The seasonal adjustment method used by NBSC is different.

c/ Official data tend to overestimate the real pace of growth.


2/ The two surveys showed that Input Prices are decreasing at a slower rate in May suggesting that inflationary pressures could come back in the coming months.
3/ Chinese authorities are facing a dilema with on the one hand, a rise of M2 (16.1% YoY in April well above the official target of 14%) and housing prices (4.9% YoY in April), a slower decrease of Input Prices and on the other hand, a slowdown in GDP associated with an increase of unemployment.


Note that a fuller view of the manufacturing activity should appear on Monday with the final release of HSBC survey.

Chinese Growth Continued to Slow in May

Since the beginning of the year, Chinese data, both private and public, have showed that growth is slowing in a context where Chinese government and PBOC opted for a more efficient growth.


Authorities want to refocus the activity from exports towards domestic consumption. Therefore, they try to improve households’ living standards by increasing the urbanization rate (more infrastructure investments) and to support housing affordability and purchasing power (lower inflation).


Currently, the problem is that property prices are increasing sharply as new home prices rose 4.9% YoY in April 2013 (biggest increase since Apr 2011). As a consequence, officials started to implement measures to curb prices which will penalize construction’s activity.


In the mean time, money supply (M2) accelerated in April reaching the highest level since March 2011 at 16.10%. This figure is well above the official target (14%) and could result in inflation in the coming months. It explains why PBOC has adopted  a less accommodative stance. Therefore, lowering interest rates or RRR seem to be excluded in the short term.


In these conditions, the activity keeps on slowing in May as the preliminary reading of  Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics was 49.6 down from 50.4 in April. It shows that China’s manufacturing is contracting for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter.


According to Bloomberg data, this negative signal is confirmed by imported iron ore price which has declined significantly since mid-February 2013 and reached today its lowest level since October 2012.



Investors and economists will look closely at the official manufacturing PMI which will be published on Saturday. According to our analysis, it is likely that this figure will be below consensus (50) and will confirm the contraction in manufacturing sector. Let we see…