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Chinese factory activity contracted again in July, official data indicates

Key Points
  • China's official manufacturing Purchasing Managers' Index (PMI) for July came in at 49.7, according to data from the Chinese statistics bureau.
  • Economists polled by Reuters had expected factory activity in China to edge up to 49.6 from June's reading of 49.4.
  • Non-manufacturing PMI for the month of July was 53.7 compared to 54.2 in June.
An employee works at a steel factory in Dalian, China.
China Daily | Reuters

A measure of China's manufacturing activity contracted for the third straight month in July, Chinese government data showed on Wednesday.

The official manufacturing Purchasing Managers' Index (PMI) for July came in at 49.7, according to data from the Chinese statistics bureau.

Economists polled by Reuters had expected factory activity in China to edge up to 49.6 from June's reading of 49.4.

PMI readings above 50 indicate expansion, while those below that signal contraction.

Non-manufacturing PMI for the month of July was 53.7 compared to 54.2 in June.

"The PMIs still appear consistent with a renewed slowdown in year-on-year growth in industrial output and broader economic activity," said Julian Evans-Pritchard, senior China economist at Capital Economics.

"With the headwinds to growth from US tariffs, cooling global demand and tighter property controls likely to intensify, we continue to anticipate further monetary easing in the coming months," Evans-Pritchard wrote in a note on Wednesday.

The PMI is a survey of businesses about the operating environment. Such data offer a first glimpse into what's happening in an economy, as they are usually among the first major economic indicators released each month.

Even though July's official PMI reading was still in contraction territory, the index edged up from June, Nomura economists noted.

That was in part likely due to faster credit growth in June and was mainly driven by growth in production, the Nomura economists wrote in a note on Wednesady. The production sub-index rose to 52.1 in July from 51.3 in June.

The official PMI survey typically polls a large proportion of big businesses and state-owned enterprises. A separate survey, the Caixin indicator, features a bigger mix of small- and medium-sized firms.

The Caixin manufacturing PMI is due on Thursday.

For China, the PMI is among the economic indicators that investors globally have been watching closely for signs of trouble amid domestic headwinds and the ongoing U.S.-China trade dispute.

China's second-quarter growth slowed to 6.2% — the weakest rate in at least 27 years — and many have attributed a least a portion of that dip to the ongoing tariff battle between Washington and Beijing.

Wednesday's data came out as an entourage led by U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer are in Shanghai to meet with their Chinese counterparts.

While U.S. officials have talked down expectations for a major deal this week, there is hope that at least some progress can be made in the tariff battle that began more than a year ago.

—CNBC's Jeff Cox and Reuters contributed to this report.