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Chinese Manufacturing Index Drops Further in August

Why read: To keep up to date with China's apparent continuing decline in manufacturing outputs - and to focus on the importance of Chinese GDP growth in the context of world economic recovery or recession.

Commentary: The Chinese Manufacturing Purchasing Manager's Index (PMI) has fallen again in August to 47.8 based on preliminary figures, and Chinese inventory levels are said to be the highest on record. A PMI under 50 is taken as a signal of manufacturing contraction, whereas a PMI of over 50 is taken as a signal of manufacturing expansion.

Chinese growth is now said to have fallen for six consecutive quarters.

None of this ought to be read with surprise by those of you who read this Newsletter, nor should the importance of Chinese GDP growth to the developed countries - particularly those with heavily vested interests in natural resources - likewise be a surprise to you.

If you participate in the financial markets or in the physical gold and silver markets, you should work hard to stay on top of the China's economic performance going forward. It is my view that the Chinese manufacturing numbers to some degree ought to correlate to consumer spending in the Eurozone and the United States - which together accounted for about 47% of world GDP in 2011. If the Chinese manufacturing numbers indeed are down, that ought to mean that:

  • adjusting for timing differences between order dates, delivery dates, and sales dates,

  • Eurozone and U.S. retail sales are more likely than not to be headed downward entering the last one-third of 2012.

If I am right in this, that does not auger well for either the Eurozone or U.S. economies in the near-term.

Topical Reference: More easing seen as China factory survey disappoints, from Reuters, Lucy Hornby and Gabriel Wildau, August 23, 2012 - reading time 2 minutes; also see China concerns mount as 'awful' data see manufacturing fall to nine-month low, from The Telegraph, August 23, 2012 - reading time 2 minutes.


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