China: PMI manufacturing dips into negative territory in May as trade war escalates
The manufacturing Purchasing Managers’ Index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP) declined from 50.1% in April to 49.4% in May. Moreover, the print undershot the 49.9% expected by market analysts. As a result, the index dipped below the 50.0% threshold that separates expansion from contraction in the manufacturing sector.
May’s reading reflected a sharp drop in new orders, while the output index also receded in the same month. As a result of weaker dynamics in the manufacturing sector, firms reduced their hiring activity. The other two components of the PMI index, the supplier delivery time index and purchasing activity, increases in the same month. Against a backdrop of heightened trade tensions between China and the United States, export orders plummeted in May. Despite remaining in positive territory, input prices—a reliable leading indicator for inflation—fell slightly in May, likely reflecting the recent drop in prices for some commodities such as oil.
Betty Wang, senior China economist at ANZ, points out that:
“Today’s data clearly illustrates the downside risks to China’s export sectors amid the trade war, which could be more severe than last year, as exporters have already front-loaded some shipments. On a positive note, some pockets of China’s non-manufacturing sector are still holding up and providing support to the overall growth momentum. We maintain our view that the government’s 6.0-6.5% growth target for 2019 is binding.”