China’s economic landscape presented a mixed picture in May as the Caixin Composite Purchasing Managers’ Index (PMI) fell to 49.6, marking its lowest level since December 2022. This steep drop represents a significant shift from last month’s 51.1 reading, in expansionary territory, and the first monthly contraction in total private sector activity. Against such a backdrop, the Caixin Services PMI came in marginally higher. It increased 0.1 points more than forecast, to 51.1, up from 50.7 in April.
Courtesy of the disaggregated data, we see that even though services activity picked up steam, the manufacturing sector hit major headwinds. The Caixin Manufacturing PMI sank below the 50 mark to 48.3—its lowest reading since September 2022—falling from 50.4 in April. At -1.7, this decrease indicates a shrinking in manufacturing production—adding to the composite index’s overall decrease.
The jump in the Caixin Services PMI signals a recovery in China’s private sector services sector activity. Though this is all encouraging movement, analysts warn that the recovery is very fragile. Services activity has picked up unexpectedly. Even this increase might not be sufficient to overcome the deepening pressures in manufacturing, buffeted by international turmoil and domestic currents.
“The Caixin services PMI increased 0.1pts more than expected to 51.1 vs. 50.7 in April. Nevertheless, the recovery remains fragile, and we expect more stimulus measures in the second half of the year.” – BBH FX analysts
That overall contraction shown by the Caixin Composite PMI points to worries over macroeconomic stability even inside China’s borders. The drop to 49.6 serves as a reminder that even as certain industries recover, the overall economic conditions continue to be filled with adversity. Instead, analysts say even more stimulus will be required to kickstart growth and continue fueling the recovery.
Therefore, the Caixin Services PMI strengthening is pretty remarkable considering the headwinds facing the Chinese economy right now. It goes some way to offering hope to firms and investors in search of more positive news of resilience from the services sector. With it, the nationwide concurrent drop in manufacturing fueling many of these reports brings into question the sustainability of this recovery.
“Earlier this week, Caixin reported that its manufacturing PMI dropped to the lowest level since September 2022 at 48.3 vs. 50.4 in April. The result is the Caixin composite PMI fell to 49.6 (lowest since December 2022) vs. 51.1 in April.” – BBH FX analysts
China is in a critical economic crisis. Policymakers will surely need to consider new actions to jumpstart the economy and strengthen critical sectors. This growing divergence between services and manufacturing performance only further underscores the unevenness and uncertainties surrounding China’s recovery path.