China's manufacturing PMI index narrows in August

China’s Caixin Manufacturing Purchasing Managers’ Index fell to 49.5 in August, a worse-than-expected reading. The data, which showed a second straight monthly contraction for the index, suggests growth is slowing and demand is contracting in the country. China’s factory activity contracted in August. The survey showed disruptions from power outages and COVID-19 outbreaks hit larger and state-owned firms as well as smaller ones. The Manufacturing Purchasing Managers’ Index fell to 49.5 last month from 50.4 in July, Caixin and S&P Global said on Thursday. That was below the median estimate of 50 in a survey of economists by Bloomberg. The index fell below 50, the dividing line between expansion and contraction, for the first time since May. The data was in line with an official survey released on Wednesday that showed factory activity contracted in August. The Caixin index tracks smaller, private and export-oriented firms, while the official PMI mostly tracks larger, state-owned enterprises. “The rise in COVID-19 cases, the extreme heat wave and limited power usage have caused a slight deterioration in overall business conditions in the manufacturing sector,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement accompanying the data. “In the face of adverse factors such as recurring COVID-19 cases and natural disasters, a sluggish labor market and shrinking consumer demand require more subsidies and assistance to the poor and low-income groups,” Wang said. China’s Caixin PMI narrowed in August, suggesting that the manufacturing sector’s recovery is losing momentum. The weaker-than-expected data reflected a range of shocks from COVID-19 outbreaks and power outages to disruptions in the real estate sector. Growth slows The export-focused survey showed supply growth slowed sharply and demand contracted. A weakening global outlook points to more weakness ahead. The world’s second-largest economy is facing increasing risks from COVID-19 outbreaks and lockdowns as cases spread to mainland provinces. A historic drought has caused power outages, while the real estate sector continues to struggle with low confidence among homebuyers and property developers. The Caixin PMI’s new export orders sub-indicator also shrank for the first time in three months, the data showed, suggesting that external demand, which has provided a major boost to the Chinese economy during the pandemic, is shrinking.