Thursday, June 23, 2011

China factory growth suggests contraction

I found this story through Americablog, with the source story coming from CNBC.Com:

China factories expanded in June at their slowest pace in 11 months while price pressures eased, a purchasing managers' survey showed on Thursday, the latest evidence the economy is losing steam in response to a spate of tightening steps.

The HSBC flash manufacturing purchasing managers' index (PMI), the earliest available indicator of China's industrial activity, eased to 50.1 in June, which was the lowest since July 2010 and close to indicating a contraction in the sector.

That compares with the final reading of 51.6 in the HSBC PMI for May. A figure above 50 points to expansion on the month.

"Demand is cooling thanks to the effect of tightening measures and the slackness in external markets," said Qu Hongbin, the chief China economist at HSBC.

I'd certainly say that demand is cooling--especially with the U.S. consumer, where China sends a ton of their exports. The American consumers are not buying, as they do not have any money to spend. The unemployment rate is at 9 percent here--possibly double if you add in the underemployed or those who have dropped out of the labor market. Housing is still in the pits. Food and energy prices have stayed relatively high. We've been the big market for China's products for years. Now that we have no money to buy China's products, where is China going to sell their stuff? So in some ways, it does not surprise me that China's factory index has dropped. I'll certainly be curious to see what the next quarter's index is--will it go below 50, to measure a real contraction?

1 comment:

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