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Caixin PMI shows signs of improvement in manufacturing conditions
01 June 2020Bernard Aw
Headline PMI rises to 50.7 in May, signalling only a marginal
upturn in manufacturing conditions
Output rises further as firms tap into backlogs to production
rebound
Demand continues to weaken
Supply chain pressure eases
Caixin PMI data showed a stronger increase in Chinese
manufacturing output during May, but a further decline in sales may
hinder the recovery in the months ahead. Export sales in particular
continued to weaken at a steep rate amid a global downturn in
demand. The manufacturing sector also reported a rise in spare
capacity, which further dampened factory employment.
While the survey highlights the challenges facing China's
factories, there were still some tentative signs of stabilisation.
Supply chains continued to revive and business expectations about
the year-ahead improved.
Manufacturing rebound
The Caixin headline manufacturing
PMI1 for mainland China, compiled by
IHS Markit, rose from 49.4 in April to 50.7 in May, indicating a
mild improvement in operating conditions of the sector from the
prior month.
The improvement was primarily driven by further growth in
output, where the increase was the fastest for over nine years.
That said, given the magnitude of the slump suffered in February,
the latest rate of growth was comparatively mild, suggesting that
the loss of output due to earlier lockdown measures has yet to be
recouped. Furthermore, the increase in production since February
came at the expense of firms tapping into backlogs of previously
placed orders, many of which had been placed before the COVID-19
restrictions were imposed. Indeed, the rise in backlogs had slowed
since February's high, with May showing the first decline in the
amount of unfinished work for over four years.
1Data for Caixin China Manufacturing PMI survey
were collected 12-20 May 2020.
Demand continued to weaken during May. New order intakes were
down for a fourth straight month, although the latest decline was
marginal. This hints at the downturn in demand approaching
stabilisation, as firms increasingly turned towards the domestic
market for sales. External demand meanwhile remained under
pressure. While slowing from April, latest drop in new export
orders was still among the steepest recorded since the height of
the global financial crisis.
With falling demand, Chinese manufacturers sought to reduce
capacity by cutting workforce numbers further. Overall employment
fell for a fifth month in a row during May. However, the rate of
decline slowed further since February's record downturn and was
only marginal overall.
The survey data showed that the sharpest fall in employment
occurred at producers of intermediate goods (which supply inputs to
other manufacturers), followed by those making investment products
(such as plant and machinery). Consumer goods manufacturers
reported a broadly unchanged level of employment.
Supply chain pressure easing
The survey brought signs of further restoration of the supply
chains in China. Delivery delays were not reported for the first
time in nearly one-and-a-half years during May as the resumption of
production continued to help rebuild the distribution network.
Consumer goods producers actually reported an improvement in
vendor performance, while deliveries of inputs to makers of
intermediate and investment goods were only modestly delayed, a
considerable change from the height of the disruptions seen back in
February.
Lower costs
Average cost burdens continued to fall in May, as lower prices
for raw materials such as coal, oil, steel and plastics were widely
reportedly for driving input prices down. However, there were
reports of rising freight costs due to capacity controls linked to
global COVID-19 measures. Prices charged for Chinese manufactured
products were meanwhile largely unchanged in May following a
three-month period of decline, hinting at a stabilisation of
pricing power.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
