Another reason to think China isn't headed for a hard landing

10/03/2011 12:49 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

All eyes are on Europe this morning, but you should try to spare an eyeball for China. On Saturday, October 1, the official Purchasing Managers Index, published by the China Federation of Logistics and Purchasing, not only stayed above 50 but also actually climbed for a second straight month. At 51.2—economists had projected 51.1—the official index was far stronger than the unofficial Purchasing Managers Index reported at 49.9. (In these indexes anything below 50 signals contraction in the economy.) Export orders climbed and factory input costs fell.

I wouldn’t go all gaga over this number (more on why not in a minute)—let's just say it’s one more reason to think that China might be able to slow its economy without crashing it and this index reading is a useful corrective for some of the more extreme pessimism out there right now. According to a Bloomberg poll last week, for example, 12% of global investors think the Chinese economy will slow to 5% growth within a year. The consensus among Wall Street economists calls for 8.2% to 8.5% growth in 2012.

Now for a caveat of two on this positive number. (Yes, I’m going to rain on your parade. Sorry.) The Purchasing Managers Index always goes up in September ahead of the weeklong National Day holiday that began today and ahead of the Christmas shopping season in the United States and Europe. (Factories rev up to create a stockpile of goods ahead of the holiday and in anticipation of the big Christmas shopping season.)



But this year’s 0.3 percentage point gain in September from August is the smallest month-to-month increase for September on record. The average increase, according to Bloomberg, from 2005-2010 is 2.3 percentage points.

The next big numbers out of China are the inflation data for September due on October 14 and GDP growth due on October 18.

Inflation hit 6.5% in July before retreating to 6.2% in August and the People’s Bank will be looking to see if that one-month’s drop signals that inflation has peaked. GDP growth dropped to 9.5% in the second quarter. Economists expect that China’s growth rate continued to ease in the third quarter.

 

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