Chinese Official Manufacturing PMI Rebounded in May, Beating Expectations

Official Chinese manufacturing PMI climbed to 50.8 (up from 50.6 in April) beating expectations for a fall to 50.0 (or even lower). May was the eight consecutive month that the official PMI was above 50, a level that indicates expansion in the manufacturing sector. A reading below 50 indicates contraction.
 
This rebound is mainly due to the “Output” component which increased to 53.3 in May against 52.6 the previous month. At the opposite, “Employment” was the only component down from April at 48.8.
 
Here is the table from the National Bureau of Statistics of China:

 

April May
PMI 50.6 50.8
New Orders 51.7 51.8
New Export Orders 48.6 49.4
Output 52.6 53.3
Inventory of Finished Goods 47.7 48.6
Inventory of Raw Materials 47.5 47.6
Employment 49.0 48.8
Input Prices 40.1 45.1


 
My view:
 
1/ The official data contrasted with the preliminary reading of manufacturing PMI released by HSBC which showed that Chinese manufacturing activity contracted for the first time in seven months in the first few weeks of May. This distorsion can by explained by three factors:

a/ The HSBC survey focuses more on small and medium-sized firms in the private sector as compared with the official one. Generally, these companies have less access to credit and more difficulties to export.

b/ The seasonal adjustment method used by NBSC is different.

c/ Official data tend to overestimate the real pace of growth.

 

2/ The two surveys showed that Input Prices are decreasing at a slower rate in May suggesting that inflationary pressures could come back in the coming months.
 
3/ Chinese authorities are facing a dilema with on the one hand, a rise of M2 (16.1% YoY in April well above the official target of 14%) and housing prices (4.9% YoY in April), a slower decrease of Input Prices and on the other hand, a slowdown in GDP associated with an increase of unemployment.

 

Note that a fuller view of the manufacturing activity should appear on Monday with the final release of HSBC survey.