Chinese Manufacturing Slows: What Investors Need to Know
Dec 2nd 2011 9:28AM
Updated Dec 2nd 2011 11:24AM
What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.
The cold, hard facts
The Financial Times is reporting that Chinese manufacturing activity has slowed (free registration required to view) for the first time in nearly three years, contributing to already significant fears about the health of the global economy.
The Chinese government released data Thursday that shows that the official purchasing managers' index, or PMI, fell to 49 in November, down from 50.4 in October. A reading of less than 50 means the manufacturing sector has contracted. A fall of some sort was expected, but not this much. It marks the first decline in the PMI since February 2009.
The release of this data comes on the heels of another rare Chinese economic event. Yesterday, the central bank began a new round of monetary easing -- cutting the reserve ratio, or RRR, for banks for the first time in three years.
"The markets have been handed a powerful one-two combo," Alistair Thornton, China analyst at IHS Global Insight, told the Financial Times, "in the form of a shocking PMI print and an aggressive RRR cut. The message is clear: The economy is slowing much faster than expected and the government has stepped into the ring."
What you need to know
But China's not supposed to slow down. Its economy is the great financial messiah that, no matter how dark and dismal the rest of the world economy gets, can be counted on to forever forge ahead and carry the world on its broad shoulders.
Sorry, nothing lasts forever. Even China, the world's factory, needs other countries to sell its wares to. And with the world economy as fragile and fearful as it is, that's not happening like it used to. But the news isn't all bad. China's economy is relatively still powering along at blockbuster levels. GDP will still grow by 9.3% this year, and an estimated 8% to 8.5% next year.
And yesterday, global equity markets had their best three-day run since 2009. The S&P 500 (INDEX: ^GSPC) closed the day up 4.3%. The Dow Jones Industrial Average (INDEX: ^DJI) was slightly behind but still posted an astonishing 4.2% gain on the day. Britain's FTSE All-World has risen 7.1% so far this week. And an employment report by paycheck processor ADP (NAS: ADP) is showing the strongest private-sector jobs growth in 11 months, at 206,000.
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