The CFLP PMI is a monthly survey of business managers and gives a good overview of the Chinese economy and how professional mangers feel about the future. Its published monthly at the start of the following month on the CFLP website. Although the CFLP do not reveal the exact composition of their sample it does state that their sample reflects the composition of industrial output across the country. It is not, however, as transparent as the HSBC Markit PMI.
The headline figure, which is published and publicly available, starts from a baseline figure of 50. Readings above 50, say 55, mean things are a bit better than the previous month. 60 is a significant improvement. Likewise, 45 is slight deterioration, and lower increasingly serious. To give you some idea of the variance, in the aftermath of the financial crisis the CFLP PMI fell to a low of 42. The survey is of importance to currency and commodity markets, but also logistics providers and supply chain managers.
Its basic methodology and inspiration was drawn for the US Institute of Supply Management (ISM). And while there is a great deal of similarity in terms of methodology with the HSBC Markit PMI, the CFLP survey covers a much wider survey base, 820 companies versus 430. An additional advantage over other PMIs or business surveys is the range of data they make publicly available.
Participants are asked to rate the current month’s situation in terms of 11 different areas:
- New Orders
- New Export Orders
- Backlog of Orders
- Stock of raw materials
- Purchasing inputs
- Input prices
- Supplier delivery times
These responses are then aggregated and weighted to give the headline figure that is measured from 50. The individual sub-indices are useful as they give information on prices and employment which can show if companies are becoming more profitable, if inflation is in the pipeline or if companies are hiring or firing. This final point is useful because it is a much more dynamic indicator of unemployment than official figures which lag behind economic conditions.
The overall performance of the PMI as market indicator was proven during the financial crisis when PMI proved a reliable indicator of the looming global slowdown in 2007.