February 29, 2016 — 8:01 PM EST
Updated on February 29, 2016 — 8:20 PM EST
Factory gauge hasn’t been at a weaker level for seven years
Services index slips to lowest point since December 2008
China’s official factory gauge extended its stretch of deteriorating conditions to a record seven months while a measure of services fell to the weakest in seven years, underscoring the challenge facing policy makers as they seek to cut overcapacity in manufacturing without derailing growth.
The manufacturing purchasing managers index dropped to 49 in February, missing the median estimate of 49.4 in a Bloomberg News survey of economists. It hasn’t been weaker since January 2009. Numbers below 50 indicate conditions worsened.
In a sign China’s slowdown is spreading, the non-manufacturing PMI — which had been outperforming the factory measure — fell to the lowest level since December 2008.
The central bank late Monday stepped up efforts to cushion the slowdown amid plunging stock prices and a weakening currency, cutting the amount of cash the nation’s lenders must lock away. The National People’s Congress will gather Saturday, where plans for 2016 and the next five years will be outlined.
“Policy will continue to be expansionary and the focus is moving from currency and supply-side reforms to demand-side stimulus,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “Upcoming data will continue to show a slowdown in the economy.”
Seasonal effects may have distorted the readings, as the week-long Lunar New Year holiday fell in February.
The services gauge slipped to 52.7 in February, from 53.5 in January.