China's Factory Activity Contracts in July for First Time in Four Months

[Financial News] China's manufacturing purchasing managers' index (PMI), a key gauge of factory activity, unexpectedly slipped back into contraction after just four months of expansion. 
On the 31st, CNBC reported that China's official manufacturing PMI, released by the National Bureau of Statistics of China (NBS), fell to 49.2 in July from 50.3 in June.
The reading was below the 50 threshold that separates expansion from contraction and also missed the market forecast of 50.0. It was the lowest level since February, ending four straight months of expansion.
CNBC said the sharp drop in exports, which had driven the second-quarter rebound, is likely to intensify pressure on the Chinese government to boost domestic demand.
China's second-quarter economic growth came in at 4.3% from a year earlier, the slowest pace in three years and below the annual target of 4.5% to 5%.
Exports, one of the main engines of China's economy this year, have also begun to weaken. According to the private research firm China Beige Book, shipments to the United States fell for the first time in several months. The labor market also showed year-on-year declines across all surveyed sectors, indicating growing employment uncertainty in manufacturing.
That stands in contrast to June, when companies rushed orders ahead of expected tariff hikes by U.S. lawmakers. At the time, concerns over additional Section 301 tariffs from the U.S. government pushed exports to the United States up 14%, lifting overall exports by 27%, the fastest pace in five years. But once the pre-order effect faded, the trend reversed.
Meanwhile, consumer sentiment is also weakening sharply. China Beige Book found that July sales in the retail sector fell both from the previous month and from a year earlier, while the travel and dining industries also deteriorated significantly compared with the same period last year.
[email protected] Yoon Jae-jun Reporter