China factory index at 19 month low as holiday slows work

Hong Kong – China’s manufacturing activity weakened to its lowest level in more than a year and a half as the extended Lunar New Year holiday curtailed production.

The official purchasing managers’ index released Wednesday slipped to 50.3 in February from 51.3 in the previous month, its biggest drop in nearly six years.

The last time the index was lower was in July 2016. It has now fallen for the third straight month though it remains just above the 50-point mark signifying expansion on the index’s 100-point scale.

Output and new orders grew at a slower pace for the month while new export orders weakened further, contracting for the second straight month, according the report’s sub-indexes.

The China Federation of Logistics & Purchasing’s PMI is a widely watched early indicator of health in the vital manufacturing sector, which employs many millions of workers and is a key component of China’s economy, the world’s second biggest.

The Lunar New Year tends to distort readings because the holiday falls at different times in the first two months of the year. Factories usually stock up on raw materials and scramble to fill orders before shutting for a week-long break, which this year began in mid-February.

“The time around the festival is traditionally a slow business season. Enterprises generally stop work to reduce production and market activity weakens,” said senior statistician Zhao Qinghe of the National Bureau of Statistics, which released the data on its website.

But because the drop was so big, economists suspected other factors were also involved. Beijing’s intensive anti-pollution campaign likely “played an important role in dampening the headline numbers on top of the holiday effect,” ANZ Bank’s China Economist Betty Wang said.

A separate report showed activity also cooled in China’s services sector for the first time in four months. The non-manufacturing purchasing managers’ index slipped to 54.4 in February from 55.3 in January.