China’s manufacturing sector expanded for the third month in a row in May, albeit at a marginal pace of growth.
According to China’s National Bureau of Statistics (NBS), the official manufacturing purchasing managers’ index (PMI) held steady at 50.1 during the month, bucking expectations for a decline to 50.0.
It was the first time that activity levels have expanded for three consecutive months since June 2015.
A PMI gauge measures changes in activity levels from one month to the next. A figure above 50 indicates that activity levels are improving while a sub-50 reading points to a deterioration — so the higher the number the better.
By size of manufacturer, the largest firms recorded a steep deceleration in activity levels, falling to 50.3 from 51.0. That was partially offset by a 0.5 point gain for medium-sized firms to 50.5. Activity levels at smaller manufacturing firms continued to contract, although at a slower pace than April. The subindex came in at 48.6, up 1.7 points.
By individual component, production rose to 52.3, up 0.1 points from April, while new orders — a lead indicator for future levels of activity — decelerated to 50.7 from 51.0. New export orders also weakened, falling to the neutral level of 50 from 50.1 in April.
Elsewhere, the subindices measuring inventories, order backlogs and import quantities continued to contract.
In a sign that manufacturers expect activity levels to slow in the year ahead, the expectations measure fell to 55.9, well below the 62.36 level seen in March.
Coinciding with the official manufacturing PMI report, the NBS also released its separate non-manufacturing PMI gauge, a survey that measures activity levels outside of the nation’s manufacturing industry.
It fell 0.4 points to 53.5 — the second decline in a row — indicating that activity levels in other sectors, largely services in this case, are growing at a reasonable pace.
Combined, the two reports suggest that business activity levels across China are continuing to expand, although at a far slower rate than what much of the world has been used to.
The market reaction to the PMIs has been muted, indicating that they are simply communicating what the markets already knew — that the Chinese economy is growing, with strength in services offsetting persistent weakness in the nation’s industrial sectors.