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China says its manufacturing activity contracted for the second-straight month in January

Key Points
  • China said on Thursday its manufacturing activity contracted for the second-straight month in January.
  • Official manufacturing Purchasing Managers' Index (PMI) for January was 49.5, according to the National Bureau of Statistics of China.
  • That's higher than the 49.4 reported in previous month, and the 49.3 expected by analysts in a Reuters poll.
Women wearing sunglasses work at a production line manufacturing electric machine parts at a factory in Luan, China November 17, 2018.
Reuters

China said on Thursday its manufacturing activity contracted for the second-straight month in January — another sign that the world's second-largest economy is slowing down amid domestic headwinds and the ongoing trade dispute with the U.S.

The official manufacturing Purchasing Managers' Index (PMI) for January was 49.5, according to the Chinese National Bureau of Statistics. That's higher than the 49.3 expected by analysts in a Reuters poll, and the 49.4 reported in the previous month when China's manufacturing PMI fell into contraction territory for the first time since July 2016.

The PMI — a widely-watched indicator — is a survey of businesses in a specific industry about the operating environment. A reading above 50 signals expansion in the sector from the previous month, while one below 50 represents contraction.

Meanwhile, China's services PMI for January came in at 54.7 — better than the 53.8 reported in the previous month, according to official data. The services sector accounts for more than half of the Chinese economy and has helped cushion the impact of a slowing manufacturing industry.

Despite the better-than-expected PMI numbers, some economists said the statistics — particularly the manufacturing data — still point to a weakening Chinese economy.

"While the official manufacturing PMI didn't weaken any further in January, it still suggests that the economy lost momentum at the start of the year," Marcel Thieliant, senior economist at Capital Economics, wrote in a note after the data release.

"The PMI data come on the heels of GDP numbers confirming a deepening of China's slowdown at the end of 2018, which has raised worries over the depth of its economic malaise and fueled speculation as to whether Beijing will further step up its recent policy stimulus measures," economists at IHS Markit said in a report last week previewing Thursday's data.

Thursday's announcement offers an early insight into business conditions in China in the new year after several American companies with exposure to the country — such as Caterpillar, Nvidia and Apple — warned that sales will likely slow in 2019.

Global investors have been tuning in to the various economic data on China for signs of damage caused by the tariff fight between Beijing and Washington. The two countries are meeting in Washington on Wednesday and Thursday for high-level talks in another attempt to iron out their trade differences.

The conflict between the two economic giants came at a time when China was already slowing down after three decades of breakneck growth. Last year, the Chinese economy grew 6.6 percent — the slowest pace in 28 years.

Chinese authorities have stepped up support for the economy, especially for smaller firms, over the past year. And analysts are expecting the government to announce more measures this year, particularly tax cuts, to stimulate economic activity.