Released: 23 April 2021
China Sales Managers Index at Near 4 Year High in April
The release of Chinese GDP data for the first quarter on April 16th provoked many superlatives. The Financial Times was not alone in headlining "record growth" and "fastest rate since records began" for the 18.3% year-on-year increase. However great care needs to be taken in interpreting such numbers.
The huge growth figure is simply a reflection of the difference between the exceptionally low GDP figure recorded while the economy was mostly locked down in Q1 2020, and the nearly normal number recorded for Q1 2021. It reflects the reversion to normality rather than wholly exceptional growth.
There are various ways of recording economic growth exemplified by the year- on-year method favoured by the Chinese statistics office, and the annualised quarter-on-quarter growth favoured by the US statisticians. The former method looks backwards and calculates growth against the picture of a year previously, whereas the US data looks only at growth between the two most recent quarters, and by "annualising" shows what the rate would be if maintained for an entire year. The numbers can look surprisingly different. The reality is probably better understood by presentation of data showing various aspects of the speed and direction of economic growth, which is what the Sales Managers Index is designed to do.
First it should be noticed that the SMI data is more recent than the official Chinese Q1 data, and now shows results for April. Overall the SMI headline index for both Manufacturing and Services sectors shows a rise to a level of 52.7, significantly above the "no change" level of 50 which indicates modest but significant growth.
Second, the number is at a 45 month high, meaning that the Chinese economy is not just growing faster than recently (howsoever defined) but is growing at a good rate compared with recent years.
Looking at the data in more detail, the Sales Growth Index, which reflects growth in the latest month compared with the previous month, shows a reading of 54.4, indicating that the Chinese economy is not just returning to levels of previous years, but really is growing rapidly.
The Business Confidence Index is up at 53 in April, suggesting Keynes "animal spirit's" have mostly emerged from the horrors of Covid.
Finally the Staffing Levels Index, based on a reading designed to reflect the buoyancy of the job market compared with one year ago, shows a very modest reading just over the "no change" level indicating that employers continue to stay cautious about recruitment, even if experiencing returning confidence.
Other elements of the survey suggest that manufactures are generally experiencing greater problems in the return to normality than service sectors. The Service Indicators are almost all at higher levels than the corresponding Manufacturing ones. The Prices Charged Indexes show a sharp differential with some manufacturing prices still reflecting hesitant demand or supply problems, whereas services prices reflect the faster recovery patterns possible where restarting operations is not dependant on sometimes long restocking cycles.
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China Services SMI: Sales Growth Index
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