May Unofficial Manufacturing PMI Declines, Slowing Growth and Persistent Cost Inflation

Overview

Goldman Sachs published a report commenting on China's unofficial (RatingDog) manufacturing PMI data for May 2026. The report notes that the PMI index fell from 52.2 in April to 51.8 in May, with both official (NBS) and unofficial PMIs declining, indicating a slowdown in China's manufacturing activity growth. While the absolute expansion level remains solid, weakening external demand and cost-push inflation from the Middle East conflict are key areas of focus.

Core views

Demand and Production: The May RatingDog manufacturing PMI came in at 51.8 (Goldman Sachs expectation was 49.8, Bloomberg consensus was 51.3), down from the previous month. Among the main sub-indices, the new orders index fell from 53.4 to 52.5, showing the most significant decline; the output index also slipped from 53.8 to 53.4. Additionally, the employment index edged down to 49.8, remaining in contraction territory. Despite the sequential declines across multiple indicators, corporate surveys showed that increased market demand, customer acquisition, product improvements, and promotional activities continued to provide strong support for new orders, with absolute levels of overall output and new orders remaining robust. Foreign Trade and Inventory: Affected by the trade environment, the new export orders index declined notably, falling from 51.1 in April to 49.6 in May, dropping below the breakeven mark. On the inventory side, firms have been rebuilding stock, with the raw materials inventory index rising from 51.2 to 51.7 and the finished goods inventory index increasing from 50.1 to 50.6. The supplier delivery times index ticked up to 49.3, indicating continued slight delays in the supply chain. Prices and Inflationary Pressure: Price indicators showed that prices continued to rise in May, though the pace of increase slowed compared to April. The input price index fell from 57.5 to 55.8, while the output price index declined from 53.6 to 52.0. Manufacturers cited rising raw material and energy costs, supply chain disruptions, and spillover effects from the Middle East conflict as the main reasons for maintaining elevated input prices. Both official and unofficial PMI price sub-indices remained high, confirming that cost-push inflation from Middle East geopolitical conflicts continues.

Analysis framework

The institution employs a high-frequency macro data tracking analytical framework, cross-verifying manufacturing sector sentiment by comparing marginal changes in official (NBS) and unofficial (RatingDog) PMI data. The analysis is structured around three dimensions: first, observing the overall index and core sub-indices (output, new orders) to assess domestic demand and production momentum; second, evaluating the external demand environment and corporate inventory restocking willingness through new export orders and inventory indicators; finally, utilizing input price and output price sub-indices, combined with geopolitical events (Middle East conflict), to analyze inflation pressure from upstream cost transmission to mid- and downstream sectors.

Methodology notes

• Macroeconomic framework

  PMI (Purchasing Managers Index) Sub-index Decomposition Analysis

  PMI is a leading indicator for measuring macroeconomic sentiment, with 50 as the breakeven point. By decomposing sub-indices such as new orders, output, inventory, and prices, the report can not only observe overall economic expansion or contraction but also precisely identify changes in domestic demand, external demand, or cost-side factors.

Key data

• RatingDog Manufacturing PMI51.8May data, down from April's 52.2, above Goldman Sachs' expectation of 49.8 and market consensus of 51.3
• New Orders Index52.5Down from April's 53.4, one of the largest declining sub-indices
• New Export Orders Index49.6Down from April's 51.1, falling below the breakeven mark
• Input Price Index55.8Down from April's 57.5, but still at elevated levels

Impact & implications

The report believes that while PMI data shows a slowing pace of manufacturing expansion, the overall absolute level remains in a robust range, indicating continued economic resilience. However, the decline in new export orders to contraction territory suggests challenges for external demand; at the same time, persistently elevated price indices indicate that rising energy and raw material costs triggered by the Middle East conflict are being transmitted to the production side, with firms facing cost-push inflation pressure that may exert some compression on future profit margins.