Chinese PMI suggests accelerating demand contraction in July

China’s manufacturing for July contracted again, now at the lowest level in the past year. More stimulus to the rescue?

The HSBC flash manufacturing Purchasing Managers’ Index, a survey of the crucial manufacturing sector published Wednesday, provides one of the first insights into what happened in the economy this month. The index fell to 47.7 from a final reading of 48.2 in June, where anything below 50 indicates contraction.

Of particular concern to policy makers is the labor market. HSBC’s employment subindex came in below the headline number at 47.3, the lowest level since March 2009, when firms laid off workers en masse in the teeth of the global financial crisis. See more details here.

Here is a video report.

Doug Oberhelman, chairman & CEO, Caterpillar, explains the headwinds that caused weakness in the company’s earnings. Mining activity and China has slowed down and inventories have been reduced among CAT dealers.

Here is a direct link.

Byron Wien in this clip: “World growth was running around 4% in 2010, its down to about 2% now, I’m concerned that there is sort of a secular change…I’m concerned that were in a prolonged period of slow growth and that is going to have an impact on your business over the next several years. Do you agree with that?”

CAT CEO: “I would agree with that…we’re in a grow out period here. Europe is going to take a long time to recover, basically debt driven which has caused a lot of this. But in the end if its 2-3% that’s the economy we have to deal with, we’ll learn to live within our means, and we will.”

Now if someone could just explain all of this to the US stock market that is assuming escalating growth for the next few years, with earnings per share forecasts at a rosy $105 on the S&P, and stock valuations back at cycle highs last seen when the world was growing above 4% in 2007. Good value?

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