China's May Caixin PMI dips into contraction, a big miss on expectations

China's Caixin manufacturing PMI for the month of May arrived at 49.6 vs 50.1 exp and 50.3 last, entering into contraction on the back of slower increases in output and new orders.

Summary

Operating conditions faced by Chinese goods producers deteriorated for the first time in nearly a year in May. The fall in the headline index coincided with slower increases in output and new orders, while staff numbers were cut at a quicker rate. Subdued demand conditions underpinned a renewed fall in purchasing activity, albeit only slight, and the first increase in inventories of finished items in 2017 so far.

Latest data also signalled the first fall in input costs since last June, which in turn led manufacturers to lower their selling prices for the first time since February 2016. The seasonally adjusted Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy – posted below the neutral 50.0 value at 49.6 in May. Although only indicative of a marginal deterioration in operating conditions, the index fell from 50.3 to signal the first decline in the health of the sector for 11 months.

Commenting on the China General Manufacturing PMI™ data, “The Caixin China General Manufacturing PMI fell 0.7 points to 49.6 in May, marking its first contraction in 11 months. The subindices of output and new business stayed in expansionary territory, but both fell to their lowest levels since June last year. The subindices of input costs and output prices dropped into contractionary territory for the first time since June 2016 and February 2016 respectively.”

“The sub-index of stocks of purchases signalled a renewed decline, while the sub-index of stocks of finished goods rebounded, indicating that companies have stopped actively restocking as inventories began to stack up. China’s manufacturing sector has come under greater pressure in May and the economy is clearly on a downward trajectory,” Dr. Zhong added.