PMIs (May) - Capital Economics
China Economics

PMIs (May)

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The PMIs show that the recovery in activity extended into last month and appears to have broadened out into parts of manufacturing that were previously struggling. But there are few signs of a marked pick-up in the overall pace of economic growth.

Recovery remains steady but slow

  • The PMIs show that the recovery in activity extended into last month and appears to have broadened out into parts of manufacturing that were previously struggling. But there are few signs of a marked pick-up in the overall pace of economic growth.
  • The Caixin manufacturing PMI rose, from 49.4 in April to a four-month high of 50.7 in May (the Bloomberg consensus was 49.6, our forecast was CE 49.5). That brings it broadly in line with the official manufacturing PMI, which was initially quicker to recover from the COVID-19 outbreak but has since lost momentum, edging down from 50.8 to 50.6 last month (the Bloomberg consensus was 51.1, our forecast was 51.0). (See Chart 1.)
  • Given the differences in the sample between surveys, this suggests that the recovery in manufacturing has now become more broad-based. New orders inched up across both indices as new export orders increased. And although the output and employment measures weakened a bit on the official measure, they strengthened on the Caixin survey.
  • The official non-manufacturing PMI inched up from 53.2 to 53.6 (Bloomberg 53.5, CE 53.0) as the services PMI increased from 52.1 to 52.3 and the construction moved from 59.7 to 60.8. This suggests that the pace of recovery in services activity increased marginally, and that infrastructure spending continues to accelerate following rapid local government bond issuance and easing containment measures. All told, the official composite PMI held steady at 53.4, suggesting that the overall pace of economic activity was broadly unchanged.
  • The divergence across manufacturing, services and construction is also evident for employment conditions. (See Chart 2.) The employment component of the construction PMI is at its highest level since 2011 and suggest that hiring in the sector is growing fast. However, the same components for manufacturing and services, which make up the lion’s share of the job market, point to at most only very modest job gains that fall far short of reversing the jump in lay-offs during the outbreak. Overall, we think labour market conditions remain weak and will hold back the recovery in consumer spending.
  • Looking ahead, stimulus measures should continue to boost infrastructure construction and credit growth in the coming months. However, while the improvement in new export orders suggest that foreign demand may be bottoming out, it remains very weak and headline export growth is still likely to slow in the near-term.

Chart 1: Headline Manufacturing PMIs

Chart 2: PMI Employment Components

Sources: CEIC, Refinitiv, Capital Economic

Sources: CEIC, Refinitiv, Capital Economic


Julian Evans-Pritchard, Senior China Economist, julian.evans-pritchard@capitaleconomics.com
Martin Rasmussen, China Economist, martin.rasmussen@capitaleconomics.com