Meaning and importance of PMI
China’s official non-manufacturing PMI (Purchasing Managers’ Index) is an economic indicator that provides a snapshot of the non-manufacturing sector of the economy. The PMI is released every month by China’s National Bureau of Statistics. Readings above 50 indicate that activity is expanding, whereas below 50 signals contraction.
China’s official non-manufacturing PMI includes the following ten sub-indices:
- business activity
- new orders
- new export orders
- in-hand orders
- input price
- sales price
- supplier delivery time
- business activities expectation
The non-manufacturing PMI covers services including retail, aviation, and software as well as the real-estate and construction sectors.
Official non-manufacturing PMI
China’s official non-manufacturing PMI rose to 53.8 in March from 52.7 in February, which indicates that expansion in the service sector has been speeding up on the backdrop of increased stimulus reforms from Chinese authorities. With the prolonged slump in the manufacturing sector, the service sector has become a key source of economic growth and employment growth for China.
Thus, China has gradually been able to achieve its goal of transforming the country into a domestic-consumption-driven economy, reducing its dependence on exports in the process.
Sub-indices of the non-manufacturing PMI
The following gives a breakdown of the sub-indices in March:
- The new orders index rose 2.1% over the previous month to 50.8.
- The input price index was up by 0.9% over last month to 51.4.
- The sales price index was 49.5—1.2% higher over last month.
- The employment index was 48.2, decreasing by 0.7% over the previous month.
- The business activities expectation index was 59.0—down by 0.5% over last month—but this continues to be positioned at a high level.
Impact on mutual funds
The non-manufacturing PMI data indicates that the service sector may emerge as a key growth driver for China. China-focused mutual funds such as the AllianzGI China Equity Fund Class A (ALQAX) and the Eaton Vance Greater China Growth Fund Class A (EVCGX). These have a combined exposure of 66.8% and 75.8%, respectively, to the financials, information technology, telecommunication services, and healthcare sectors as of December 2015, and should benefit from the growth in the non-manufacturing sector.
Continue to the next part for a look at China’s industrial profits data.