China's factory activity growth slows in January due to COVID-19

103008165 China economy2

The Institute for Supply Management's gauge of factory activity eased to a still-elevated 58.7 in January from 60.5 a month earlier, according to data released Monday.

"The structural mismatch between those who are out-of-work, primarily service workers, and those looking to hire, manufacturers, is a key reason why our forecast shows a more gradual jobs recovery than an otherwise robust rebound in output would suggest", said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

US manufacturing activity slowed slightly in January, while a measure of prices paid by factories for raw materials and other inputs jumped to its highest level in almost 10 years, strengthening expectations inflation will perk up this year.

But China's manufacturing activity expanded at the slowest pace in seven months in January, weighed down by falling export orders. A PMI above 50 percent indicates economic expansion while below 50 percent shows contraction.

The Production Index registered 60.7%, a decrease of 4 percentage points compared to the seasonally adjusted December reading of 64.7%.

Finally, the New Orders Index edged lower to 61.1 from 67.5.

But with migrant workers encouraged to stay in the cities where they work this year instead of returning home, manufacturing PMI might rebound slightly in the coming month, said Lu. The two industries reporting contraction in January are printing & related support activities; and petroleum & coal products.

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The official manufacturing Purchasing Manager's Index (PMI) fell to 51.3 in January from 51.9 in December, the National Bureau of Statistics said in a statement on Sunday. "Survey committee members reported that their companies and suppliers continue to operate in reconfigured factories", said ISM's Timothy Fiore.

Manufacturers mostly described demand as strong last month, but anxious about labor and input supply constraints. "Increased demand, labor constraints and upstream supply delays are pushing lead times". With state-owned companies only reaching 80% productivity of private Chinese firms, the Chinese economy may be even stronger than the PMI index indicates.

The ISM revised data going back to 2012.

Food producers reported that "labor continues to be one of our largest challenges".

Manufacturing was hammered in the first half of 2020 by the COVID-19 pandemic.

In the meantime, he noted that as the us dollar is weakening, it is supporting high commodity prices, coupled with the expectation that New Export Orders could head up in the coming months.

The employment barometer rose to 52.6 percent from 51.7 percent - the best reading in almost 2 years. That's a positive sign ahead of Friday's January jobs report, which is expected to show a small rise in employment, supported in large part by manufacturing hiring.

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