Explainer: China’s manufacturing outlook weakens showing economic slump is yet to hit bottom
- May’s manufacturing purchasing managers’ index (PMI) dropped to 49.4, the first time it has dipped into negative territory since February
- Service sector PMI improved slightly ahead of new US tariffs taking effect, but analysts suggest Beijing’s stimulus are wearing off
China’s manufacturing outlook took a sharp downturn in May, suggesting that the economic slump has yet to reach bottom, analysts said.
The manufacturing purchasing managers’ index (PMI) is a gauge of sentiment among factory operators and is based on a survey, the responses to which are aggregated into a number. A number above 50 signifies a positive economic outlook, while below 50 means sentiment is in contraction.
May’s figure was 49.4, the first time the manufacturing PMI has slipped into negative territory since February and a sign that the effects of the US-China trade war are being felt among the country’s producers. In April, manufacturing PMI was 50.1, with the reading for May lower than analysts’ expectations of 49.9.
Significantly, the biggest drops were in new orders, which were down to 49.8 from 51.4, and new export orders, which dropped to 46.5 in May from 49.2 in April. This means factories are expecting lower sales and to produce fewer goods.
The employment sub-index of the manufacturing PMI also dropped from 47.2 to 47.0, the lowest reading since March 2009, a sign that factories are generally not expecting to hire more staff.