(RTTNews) - China’s manufacturing activity hit an eighteen month high in October, while employment levels in the manufacturing sector soared to a record high, a survey by Markit Economics and HSBC revealed Monday.

The HSBC Purchasing Managers’ Index stood at 55.4 in October, up from 55.0 in September. This is highest reading recorded since April 2008. A reading above 50 indicates expansion, while one below 50 suggests contraction.

Output climbed for the seventh straight month, although the rate of increase was the slowest recorded in the last three months. The growth in output was widely attributed to further gains in new business.

New incoming businesses rose for the seventh consecutive month, reflecting improved demand from both domestic and external sources. Foreign order levels climbed for the fifth month running, and also at its strongest rate since June 2007.

Substantial gains in new business boosted employment, with job creation rising for the fifth consecutive month and also at its highest level on record.

Further, input prices in the manufacturing sector rose, albeit at their weakest pace in the current four-month period of inflation, with rising demand on global community markets continuing to generate marked inflationary pressures. On the other hand, output prices rose for the fourth consecutive month, albeit at a slower pace, with respondents blaming rising input costs.

“The ongoing strong recovery in the manufacturing sector should gain further momentum in the coming months, hence underpinning strong economic growth in the fourth quarter,” commented Hongbin Qu, Chief Economist for China at HSBC.

The HSBC PMI report on manufacturing is compiled based on a survey of purchasing executives in over 400 manufacturing companies across the country and serves as an indicator of the overall health of the manufacturing sector.

Meanwhile, official data from China’s Federation of Logistics and Purchasing showed on Sunday that the purchasing managers’ index rose to a seasonally adjusted 55.2 in October from 54.3 in the previous month. This marks the eighth straight month in which the PMI has shown expansion, while also hitting an eighteen month high in manufacturing activity.

“The news is unambiguously positive,” ING Chief Asian Economist Tim Condon said. The economist expects strong October activity data to dispel doubts about the sustainability of growth that currently overhang risky assets.

The continued robust growth in the Chinese manufacturing sector is good news for the global financial system, with China being one of the largest trading nations in the world.

Recent data from the region has been highly encouraging, with the gross domestic product rising 8.9% in the third quarter, faster than the 7.9% increase in the previous quarter and the 6.1% growth in the first quarter. In September, consumer and producer prices recorded monthly gains, while industrial production and retail sales also surged ahead.

Despite the economic recovery gathering pace, the People’s Bank of China has repeatedly stressed the need to maintain an easy monetary policy, with central bank adviser Fan Gang commenting recently that fiscal spending must be continued until next year to reach a full recovery in 2011.

“The economy needs another year of stimulus spending to reach an 8% growth rate in the upcoming year and build a solid base for full recovery by 2011,” Fan said. He added that tightening the monetary policy now could lower economic growth as private investments continue to remain sluggish.

Earlier in the day, Chinese Commerce Minister Chen Deming commented that the government will keep the yuan exchange rate stable to give its exporters and manufacturers a predictable economic environment for the foreseeable future.

“The yuan’s exchange rate will also maintain basic stability, making the future situation predictable for our export industry and domestic manufacturers,” Chen reportedly said at the Canton fair according to the official Xinhua news agency.

Following the release of the PMI report, the Chinese yuan surged to a 5-day high against the U.S. dollar.

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Posted in Categories: Economy, Forex, Releases, USA.

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