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China’s PMI Data Show a Slowdown in the Economy

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Official manufacturing PMI

China is the world’s second-largest economy. Its manufacturing PMI (purchasing managers’ index) fell more than expected in February.

China’s official manufacturing PMI fell to 49.0 in February. This is below the Market’s expectation of 49.3. It’s also below the reading of 49.4 in January. February’s reading is the steepest manufacturing PMI since November 2011. Also, this is the seventh consecutive month that the manufacturing PMI stayed below 50—the longest stretch ever recorded. A PMI reading below 50 shows the shrinking manufacturing activity in China.

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Official non-manufacturing PMI

The service PMI, or non-manufacturing PMI, reading also released on March 1. According to the data, China’s non-manufacturing PMI fell to 52.7. It was below the reading of 53.5 in January. The service PMI outperformed the manufacturing PMI. It stayed above 50—this indicates expansion. However, it fell to the lowest level since December 2008. Also, the US PMI readings were released on March 1. We’ll discuss this in the next part. In this series, we’ll also explain how China’s recent PMI data impacted base metals and gold.

Caixin manufacturing PMI fell

The Caixin Manufacturing PMI focuses more on small to medium-sized private firms. Its manufacturing activity fell for the 12th consecutive month. For February, the Caixin Manufacturing PMI was 48.0. This is below the Market’s expectation of 48.3. It’s also below the reading of 48.4 in January. These recent PMI reports show the deteriorating conditions in China’s job market. The reports put pressure on policymakers regarding the development plan for the next five years. The 13th five-year plan is scheduled to release on March 5, 2016.

Considering that China is the top consumer of copper and other base metals, the recent PMI reading impacted base metal miners like Freeport-McMoRan (FCX), Glencore (GLNCY), Alcoa (AA), and BHP Billiton (BHP). The reading also impacted ETFs like the SPDR S&P Metals & Mining ETF (XME). These weak PMI readings show the spreading economic slowdown in China. There will need to be an increase in stimulus measures to improve the economic health.

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