October Sales Managers Survey: China Outlook Worsens:

Thought for the day

October Sales Managers Survey: China Outlook Worsens

Last updated: 21 October 2024

Buoyant Chinese Services sector activity has continued to support overall growth in the Chinese economy, despite obvious problems in the Manufacturing sector. Until October. The just released October data shows a 1.4 point fall in the overall Sales Managers Services Index, to a 15 month low. And not only a big fall, but a fall below the crucial 50 "no change" level signifying not just a fall in the level of growth, but a recession in Service sector activity levels.

Overall quarter 3 Sales Managers Index data for the Services sector reflected healthy growth. The Service sector data for October, the first month of the fourth quarter, backed up by continuing difficulties evident in the Manufacturing sector in October, suggests the Chinese economy might be on the verge of a actual fall in economic activity in the fourth quarter, and not just a reduction in the rate of growth.

China Headline Sales Managers Index (Manufacturing & Services)
Diffusion Index. (50 = 'No Growth')

October Sales Managers Survey: China Outlook Worsens

It must be emphasized that not too much weight should be placed on a single data point from any individual economic index. Particular events, seasonality, problems with the data sample and many other factors can influence the results of a monthly panel survey. It is possible that the big fall in service sector activity recorded in October may be reversed in November. The Chinese Government is clearly reacting energetically to the slowdown in business activity that has taken place in recent months. So subscribers are cautioned to play close attention to the economic data and Indexes that follow the early publication of the Sales Managers Index data.

The October data does contain some less gloomy results than those outlined above. In both the Services and the Manufacturing sectors Business Confidence remained positive.

In the Manufacturing sector, Confidence actually bounced back to all 11 month high, registering an index reading of no less than 51.9, suggesting very positive views. The Business Confidence Index is particularly important as the question asked of panel members relates to their confidence in the future course of business activity, not its present level. Sales Managers, because of the very nature of their work tend to be more attuned to the immediate future. They are in general very aware of levels of contracts they expect to be signed shortly, as well as current order books, with the potential personal impact of likely sales levels on bonuses linked to sales. Economists often refer to levels of Business Confidence as "animal spirits", reflecting the great importance of Confidence on future levels of investment and employment.

There are other favourable factors evident from the October Sales Managers Survey now available to subscribers. But the overall message of the October data must be one of caution. Until more data points illuminate the likely course of economic activity in China in the last quarter, preparations to batten down hatches in case of stormy weather ahead might seem appropriate advice. Subscribers must now have a significantly optimistic disposition before they can start to believe that the world's great growth engine of the past few decades is moving back towards its previously central role in sponsoring global economic expansion.
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