(Bloomberg) -- The earliest-available indicators of China’s economic performance point to a continued slowdown in November.
Economic growth was already the slowest in almost three decades in the third quarter, and Bloomberg Economics’ gauge aggregating the earliest data from financial markets and businesses shows that continuing, with a worsening picture for trade, sales manager sentiment, and factory prices.
While tensions with the U.S. have eased since the two sides announced talks toward a so-called “phase one” deal last month, a leading indicator for trade flows in Asia, South Korean exports, still contracted almost 10% in the first 20 days of November. That’s an improvement from September’s worst result in a decade, but it indicates that high-technology trade across the region is still struggling as the Christmas shopping season approaches.
Profits at Chinese industrial firms fell the most on record in October, dropping 9.9% from a year ago, data from the National Bureau of Statistics showed Wednesday. The decline in prices at the factory gate is one of the factors undercutting those profits and is expected to continue in November, according to a Bloomberg tracker of producer prices.
The falling prices indicates domestic demand is weak. If those deflationary effects continue it will further hurt corporate profits at home and eventually drag down prices and profits overseas as well.
Sales managers at Chinese companies reported the worst conditions on record, with the headline index and sub-indexes for manufacturing and services all below the 50 level that separates growth from contraction. Business confidence was at a 14-month low, and all the gauges for manufacturing dropped from recent months, suggesting widespread problems, according to World Economics, which compiles the data.
SAIC Motor Corp., the biggest Chinese carmaker, has reported four consecutive quarters of falling profit as consumers have stayed away from showrooms. Auto sales have slowed in particular outside big cities, where less affluent consumers are more likely to be hit by the slowing economy. The carmaker cut its sales forecast in July, predicting the first annual decline in 14 years.
Warren Buffett-backed BYD Co., China’s biggest maker of new energy vehicles, last month reported an 89% slump in third-quarter earnings and warned profit could fall as much as 43% this year. Electric-car maker BAIC BluePark New Energy Technology Co. forecast a 2019 loss in a grim earnings update.
What Bloomberg’s Economists Say..
“Given weak global demand and uncertainties over trade talk, China’s growth has to rely more on domestic demand. However, worryingly, China’s factory deflation continued and deepened for the fifth month.”
Qian Wan, Bloomberg Economics
Yet there is some optimism among the parts of the economy most exposed to the global economy. Export-focused firms were more upbeat in a Standard Chartered Plc survey of smaller businesses.
“Production activity accelerated as external demand rebounded” while the new orders sub-index for domestically focused smaller companies weakened, Hunter Chan and Ding Shuang from Standard Chartered wrote in the report. “The manufacturing sector outperformed, its performance index rising to a seven-month high, while that of the services sector dropped.”
Iron ore prices have risen recently on optimism for domestic demand next year, with prices of steel rebar, which is used in construction, surging to their highest since May.
Note on Early Indicators construction
Bloomberg Economics generates the overall activity reading by aggregating the three-month weighted average of the monthly changes of eight indicators, which are based on business surveys or market prices.
Major onshore stocks - CSI 300 index of A-share stocks listed in Shanghai or ShenzhenKey property stocks - All the constituents of CSI 300 Index that are in the real-estate industryIron ore prices - Spot price of iron ore for shipment to Qingdao portCopper prices - Spot price for refined copper in Shanghai marketSouth Korean exports - South Korean exports in the first 20 days of each monthFactory inflation tracker - Bloomberg Economics created tracker for Chinese producer pricesSmall and medium-sized business confidence - Survey of companies conducted by Standard Chartered BankSales manager sentiment - Survey of sales managers in Chinese companies by World Economics Ltd.
(Updates with weak car sales from seventh paragraph.)
To contact Bloomberg News staff for this story: James Mayger in Beijing at firstname.lastname@example.org
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