China's manufacturing sector expands for 6th consecutive month
What's the story
China's manufacturing sector has expanded for the sixth consecutive month in May, albeit at a slower rate. The slowdown comes despite solid output and new orders as well as easing price pressures. The RatingDog China General Manufacturing Purchasing Managers' Index (PMI), published by S&P Global, dropped to 51.8 in May from April's 52.2 but was slightly above analysts' expectations of 51.6.
Sector performance
Manufacturing sector sustained its expansion in May
Yao Yu, the founder of RatingDog, said, "Overall, the manufacturing sector sustained its expansion in May, albeit at a slower pace." He added that "the easing of inflationary pressures provided some relief to firms' cost and pricing environments." This private survey's findings are more optimistic than an official report released on Sunday which showed factory activity stagnated in May with a drop to 50 from April's 50.3.
Growth factors
Production increases for 6th consecutive month
The private survey also revealed that production has increased for the sixth consecutive month, driven by investment goods. Companies have attributed this growth to stronger market demand, higher new orders, product improvements, and new business opportunities. New orders have risen for the 12th straight month but at a slower pace than in April.
Export challenges
New export orders contracted for first time in 5 months
Notably, new export orders contracted for the first time in five months. This could be an early indication that rising energy prices are affecting global demand for Chinese goods. The survey also noted that price pressures eased in May with input and output price inflation easing for the first time in six and seven months, respectively.
Cost trends
Input cost inflation fell to 3-month low
The survey found that input cost inflation fell to a three-month low, with the investment goods sector witnessing the sharpest increase and consumer goods the weakest. Average output inflation also eased but remained above the long-run average. Intermediate goods producers witnessed the fastest rise in output prices while consumer goods firms posted the slowest increase.
Market dynamics
Employment falls to 5-month low
Chinese goods producers have hiked their export charges for the sixth consecutive month, albeit at a slower pace than in April. Work backlogs also increased for the fourth straight month as sustained order growth and supply delays added to workloads. However, employment fell to a five-month low and was below the 50 mark, signaling a reduction in staffing levels.