The ongoing lesson in PMI interpretation added another layer with China’s turn. The official manufacturing PMI dropped back to 50.1in April from 50.2 in March. Last month’s rise above 50 was the first in that position since last July. Because of the mainstream interpretation about what 50 or not 50 means, it was taken then as if it were definitive proof both that China had endured and pushed past the worst, and “stimulus” was working as intended to be the catalyst for it. Falling back in April was a big disappointment.
The Caixan version of manufacturing PMI was worse than the official index, falling “unexpectedly” to 49.4 and further disrupting the optimism that took last month’s rise to 49.7 as if it was going to be the last below 50. In terms of services, or non-manufacturing, the official PMI fell back, as well. Registering 53.8 last month, the April reading of 53.5 was hugely disappointing since that level is indistinguishable from 2015’s troublingly low levels.
It is abundantly clear that nothing has changed in China, which is entirely the problem. No matter what monthly variation, sometimes with upticks lasting several months, the trend remains entirely undisturbed. The only evidence of “stimulus” found via these PMI’s is that it hasn’t worked and is not likely to at any point in the future. That is the only real interpretation of these sentiment surveys, namely that the larger trend is seemingly immune from whatever the PBOC or Chinese government does or might do.
The media and economists, however, only have two versions of commentary about the PMI’s. When they all rose in March (MarketWatch),
“We suspect this reflects a pick-up in state-led infrastructure spending, although a more buoyant property market may also have played a role,” said Julian Evans-Pritchard, an economist with Capital Economics, in a research note. He said he saw the improved sentiment as a sign recent stimulus measures are gaining more traction.
And now that PMI’s fell back in April (also MarketWatch):
The unexpected, if modest, drop in activity suggested that government efforts to bolster growth by expanding credit are having a short-lived effect. “This really highlights the fact that the stimulus we saw in the first quarter has a limited time frame,” said IG Markets analyst Angus Nicholson. “The fact that the PMI is already weakening shows the easy-credit policies are having far less efficacy in driving growth.”
That, of course, can only mean more “stimulus.” Those are the only two options for the mainstream – “stimulus” either works or when it doesn’t it just means there will be more of it. Moving beyond these meaningless monthly gyrations shows that again “stimulus” is irrelevant, at best, or, at worst, actively contributing to the slow, painful depressiveness that now lingers unbelievably into its sixth year. There is no other way to read these PMI’s, as “50 or not” tells us nothing; 50.1, 49.4, or 53.5, these are all the same and no different than last year. These PMI’s continue to suggest only that China remains in big trouble, never having left the danger zone.