China business sentiment hits eight-month low in October

Production, inventories and employment lead decline in confidence.

Business confidence slipped for the second consecutive month in October, falling to an eight month low, amid calls for the Chinese authorities to do more to boost growth.

The MNI China Business Indicator fell to 51.7 in October, a further deterioration from September’s sharp decline to 52.2. While the indicator remains above the breakeven 50 line that separates expansion from contraction, the trend weakened further, with business sentiment below the average of 54.0 seen over the past 12 months. 

According to MNI Indicators, the latest decline was led by a significant drop in confidence among service sector companies, a sign that the domestic economy is decelerating further.

The fall in overall business sentiment came alongside a weakening in Production, Inventories and Employment. The latter fell below the breakeven 50 level and left the indicator more in line with evidence from our consumer survey which has shown a considerable weakening in labour market conditions.

Here’s more from MNI:

One of the few bright spots in the survey was New Orders, with firms signalling some strength in both current and expected demand. The outturn adds some hope that the strong trade data seen in September may continue. While the importance of the orders data shouldn’t be underestimated, the overall weaker trend of the survey adds to evidence that the 7.5% growth target for 2014 may not be met.

The October survey also showed only a minor easing in disinflationary pressures. Prices Received increased, but remained in contraction, while Input Prices were little changed following September’s sharp drop.

“In spite of the deteriorating housing market and the softening in domestic demand, thus far the Chinese authorities have held off introducing a full-blown stimulus package, opting instead for a range of targeted measures. While our central case doesn’t see this changing, the recent weakness in the MNI China Business Indicator suggests their resolve may be tested further.” said Philip Uglow, Chief Economist of MNI Indicators.