Chinese manufacturing activity expands fractionally in May, but the internals look promising

China’s National Bureau of Statistics has just released its manufacturing PMI report for May, and it’s come in bang on expectations.

The index rose to 50.2, in line with analyst forecasts and above the 50.1 level of April. It also marks the fastest pace of expansion seen since November 2014.

A reading above 50 indicates sector activity is expanding while a figure below 50 points to a contraction. 50 indicates no change in overall activity.

While the headline figure rose fractionally the internals of the report were far more robust with output and new orders both expanding at a faster pace while new export orders, order backlogs and input prices all contracted at a slower pace than what was previously reported in April.

The surveys output index increased to 52.9 from 52.6 with the figure the highest seen since October last year. Indicative of firmer domestic demand new orders increased to 50.6, the strongest reading since November, while new export orders, having contracted since September last year, rose to 48.9 from 48.1 in April.

Interestingly, particularly when it comes to the likelihood of additional monetary easing from the PBOC, the measure on input prices – raw materials in other words – increased to 49.4 from 47.8 seen previously. While prices continue to decline, the pace of contraction is now the slowest seen since July last year.

Based on those improvements the outlook for activity across the sector appears to be improving, albeit modestly.

While the manufacturing PMI report was reasonable without being spectacular, growth across the nations services sector continued to slow with the non-manufacturing PMI gauge slipping to 53.2.

Not only was the decline the third month in a row that a slowdown has been recorded, at 53.2, it also marked the slowest pace of expansion seen since January 2014.

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