China's Caixin manufacturing PMI falls to lowest level on record

Activity in China’s manufacturing sector fell sharply in February as the coronavirus outbreak took its toll, according to a private survey released on Monday.

The Caixin/Markit purchasing managers’ index for the sector slumped to 40.3 in February from 51.1 in January, missing consensus expectations for a reading of 45.7 and hitting the lowest level since records began in April 2004.

This followed official data over the weekend showing that China’s manufacturing PMI fell to 35.7 in February from 50.0 the month before, marking its worst level on record. Meanwhile, the non-manufacturing PMI printed at 29.6, down from 54.1.

The construction component of the official PMI was especially weak, namely due to the sector’s dependence on migrant workers who have been slow to return from their hometowns.

A reading above 50.0 indicates expansion, while a reading below signals contraction.

"The shocking reports hammer home the view the global economy could undergo a sizeable economic cooling. China is the workshop of the world so when they undergo a huge shock, the ripple out effect will be big," said CMC Markets analyst David Madden.

Pantheon Macroeconomics said the message from Caixin was at odds with the official number, and not in the direction it had expected.

"It’s possible that problems with data collection also are at play. We had expected the Caixin manufacturing gauge to underperform the official; it is focused on smaller firms, which reportedly are struggling with the shutdowns more than the large firms represented in the official gauge.

"Broadly speaking, though, both point to real pain in the manufacturing sector, with the Caixin drops in output, new work and staffing all creating new records."