The health of China’s manufacturing sector continued to decline in May, with output and new orders both falling slightly. At the same time, job shedding persisted across the sector, with the rate of reduction remaining close to February’s post-global financial crisis record. Weak demand conditions underpinned further falls in both purchasing activity and inventory holdings in May. Inflationary pressures appeared to cool slightly, however, with input prices and output charges both rising at weaker rates.
Adjusted for seasonal factors, the Purchasing Managers’ Index™ (PMI™) dipped to 49.2 in May, down from 49.4 in April, and below the neutral 50.0 value for the fifteenth successive month. That said, the PMI reading remained consistent with only a marginal deterioration in the health of the sector overall.
Weighing on the headline index was a renewed fall in total new business placed at Chinese manufacturers in May. Though fractional, it was the first reduction in new work for three months. According to panellists, poor market conditions had led to a drop in client demand in the latest survey period. New export orders also fell in May, with the latest reduction the quickest seen in three months and moderate overall.
Reflective of weak demand conditions, companies trimmed their production schedules fractionally for the second month in a row. Payroll numbers at Chinese manufacturers continued their downward trend in May. Moreover, the rate of job shedding remained similar to February’s multi-year record and was solid. Panellists that noted lower staff numbers generally commented on efforts to raise efficiency through down-sizing policies and the non-replacement of voluntary leavers. At the same time, backlogs of work rose only slightly in May, as has been the case in each of the past three months.
Purchasing activity fell for the second successive month in May, though the rate of reduction eased since April and was marginal. Meanwhile, tighter inventory policies persisted in May, with a number of monitored firms commenting on weaker client demand and lower production schedules. Stocks of finished items fell at a much slower pace than in April, however, while inventories of inputs fell modestly.
Although purchasing activity fell, average suppliers’ delivery times continued to lengthen in May. Longer lead times were generally linked by respondents to stock shortages at suppliers.
May data signalled a third successive monthly increase in cost burdens. That said, the rate of inflation eased since April and was modest overall. Some panellists commented that higher raw material prices had raised total input costs. In line with the trend for cost burdens, average output charges increased at a modest pace in May, following a solid rise in the previous month.
The official PMI:
The National Bureau of Statistics said Wednesday that China’s official purchasing managers index for manufacturing remained at 50.1 last month, the same level as in April (…)
The statistics bureau said the manufacturing subindex measuring new orders dropped to 50.7 in May from 51.0 in April, exports edged down to 50.0 from 50.1 while the production subindex improved slightly to 52.3 from 52.2. (…)
China’s official nonmanufacturing PMI, also released Wednesday, fell to 53.1 from 53.5 in April. (…) (WSJ)