China PMI Improves, BOJ Tankan Sentiment Sinks, Oz Manufacturing Surprises

By Glenn Dyer | More Articles by Glenn Dyer

China’s second survey of manufacturing activity last month rose back into positive territory, as did the official survey on Tuesday but the make up of the recovery wasn’t convincing and the weaknesses of these types of surveys were again exposed.

At the same time surveys of sentiment and activity in Japan and throughout the rest of the Asian region were gloomy, except for Australia where the great loo paper hoarding rush helped push Australian manufacturing to a very narrowly-based rebound in march.

The Caixin China manufacturing purchasing managers index, which is skewed toward small, private manufacturers, rose to 50.1 in March from the record low of 40.3 in February,

The March reading, while just positive, were however under the more buoyant readings from July 2019 to January this year, indicating the recovery hasn’t been all that convincing.

According to Caixin, output expanded due to easing travel restrictions, but new orders fell, with, new export orders declining notably in March as the virus and government policies to combat it saw widespread closures outside China and concerted efforts to flatten demand.

China’s manufacturing sector faced dual challenges in March as “business resumption was insufficient; and worsening external demand and soft domestic consumer demand restricted production from expanding further,” according to Zhong Zhengsheng, an economist at CEBM Group, in a statement accompanying the report.

Caixin also pointed out that employment data signalled a further reduction in employment, though the rate of decline eased since February.

China’s official manufacturing PMI, which focuses more on large, state-owned firms, jumped to 52.0 in March from a record low of 35.7 in February, the National Bureau of Statistics said Tuesday.
Elsewhere in the region Southeast Asian manufacturers felt the brunt of the coronavirus pandemic in March.

The ASEAN manufacturing activity survey index plunging to an all-time low as operating conditions worsened at the fastest pace since the survey started in July 2012.

IHS Markit which conducts the survey, said the index fell to 43.4 in March from 50.2 in February, way below the 50.0 level separating expansion from contraction.

The figure showed a shapr slump with all of the survey’s indicators hit record lows, with significant rates of declines for output and total new orders.

Singapore’s PMI fell by the most, slipping a record 18.1 points to 27.7 in March, the lowest in the series’ nearly eight-year history. The PMI for the Philippines dropped to 39.7, falling below the 50.0 mark for the first time since the survey began January 2016, according to IHS Markit.

IHS Markit said that “overall, March highlighted the worst performance of the ASEAN manufacturing sector on record.”

Indonesia’s PMI returned to contractionary territory in March after expansion in February, sliding to an all-time low of 45.3. Thailand’s PMI plunged to a record low of 46.7 in March, while Malaysia’s PMI fell to just over 48.

In Japan the quarterly Bank of Japan sentiment (or Tankan) survey was gloomy with confidence levels among Japan’s large manufacturers falling to the lowest level in seven years thanks to the coronavirus pandemic disrupting global supply chains and whacking demand.

The main index measuring large manufacturers’ sentiment fell to minus 8 in March, compared with zero in the last survey in December.

The index represents the percentage of companies saying business conditions are favorable minus those saying conditions are unfavorable.

The reading was the lowest since March 2013 and was a fifth straight quarter that showed a deterioration in sentiment.

The index measuring large non-manufacturers also slumped to plus 8 from plus 20 in the December survey as the number of inbound tourists fell sharply and Japanese consumers were forced to remain at home because of the pandemic.

Meanwhile, the hysterical grocery product hoarding last month by Australia’s households saw an unexpected boost to Australia’s manufacturing sector in March.

The Australian Industry Group’s Performance of Manufacturing Index (PMI) soared 9.4 points to 53.7 after seasonal adjustments, ending a four-month run of sub-50 readings.

“This somewhat surprising expansion – in the midst of the escalating COVID-19 pandemic and emerging recession – is almost entirely due to a huge surge in demand for manufactured food, groceries, and personal care items, as shoppers stock up on processed food, toilet paper, cleaning products and other household essentials,” the Ai Group said in a commentary with the survey results.

Other parts of manufacturing were weak.

“There was a clear divergence between the manufacturing sectors in March, with the food & beverages (unchanged at 59.0 points) and chemicals (up 1.2 points to 50.1) sectors reporting a spike in sales, production, and new orders, while the other manufacturing sectors all contracted in difficult trading environments,” the AIG report said.

“The input prices index increased by 6.6 points to 64.0 in March, with increased lead times and prices for air freight a concern for both importers and exporters.

“The selling prices index rose by 4.6 points to a relatively strong expansion at 55.0. With the exception of the metal products sector, selling prices rose across all manufacturing sectors in March and were especially elevated for food & beverage manufacturers as local demand surged.”

Thanks to higher approvals for apartments and townhouses in Victoria, overall building approvals rose 1.0% in February, in trend terms, according to the Australian Bureau of Statistics (ABS) dwelling approvals data released yesterday.

“The rise was driven by private sector dwellings excluding houses (ie apartments, home units, townhouses, which rose 1.6% in trend terms.

That was driven by a big rise in the number of apartments approved in February lawed back the fall in January.

Private sector houses also rose 0.6%”.

Across the states and territories, dwelling approvals rose in Victoria (3.9%) and Queensland (0.4%).

Falls were reported in the ACT, down 7.7%, Northern Territory (5.3%), South Australia (2.6%), AW 2% and NAW saw a dip of just 01%. Tasmania was flat

Approvals for private sector houses rose 1.0% in WA, 0.9% in Victoria,0.6% in Queensland and New South Wales saw a small rise of 0.2% in trend terms. South Australia was flat.

The seasonally adjusted estimate for total dwellings approved rose 19.9% in February, driven by a 61.7% increase in private dwellings excluding houses. This was largely due to strength in approvals for apartments in Victoria, which came off a low base in January.

This is a very volatile series and depends highly on the speed at which local government and state planning authorities approve applications for various types of dwellings. It looks like there was a huge backlog in Victoria that was sorted out in February.

That is clearly not sustainable and there will no doubt be a big fall in March in Victoria and elsewhere.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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