China's Official Manufacturing and Non-Manufacturing PMI Both Rose in June

Overview

This report comments on China's official NBS PMI data for June. Manufacturing PMI rose from 50.0 in May to 50.3, while non-manufacturing PMI increased from 50.1 to 50.2. Goldman Sachs interprets this as a moderate improvement in manufacturing and services activity, while construction remains in contraction territory.

Core views

The core views are: first, manufacturing momentum improved at the margin, with better new orders, output, and trade-related sub-indices; second, services improved slightly, with PMI in some information technology, finance, and insurance-related industries at relatively high levels; third, although the construction PMI rose to 49.0, it remained below the boom-bust line and was affected by weather disruptions such as high temperatures and heavy rainfall; fourth, manufacturing price indicators fell significantly, with input prices still above 50 while output prices were below 50, implying that margins remain under pressure.

Analysis framework

The report adopts a macro high-frequency data commentary framework, analyzing overall activity, demand, trade, inventories, firm size, prices, and industry structure around the NBS manufacturing PMI, non-manufacturing PMI, and their major sub-indices, while comparing them with Goldman Sachs' forecasts, Bloomberg consensus expectations, and the previous month's data.

Methodology notes

• macro_indicator_trackingNBS PMI tracking

  PMI boom-bust threshold and sub-index breakdown

  It uses 50 as the dividing line between expansion and contraction, and combines new orders, output, employment, export orders, imports, inventories, prices, services, and construction sub-indices to assess the direction of economic activity.

• surprise_assessmentAsia-MAP

  Growth relevance and surprise assessment

  The report gives an Asia-MAP score of 0 for the official manufacturing PMI and notes a growth relevance score of 3/5 and a consensus surprise score of 0, indicating that the data has moderate relevance for growth but limited surprise versus expectations.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Macro Assets

  PMI improvement reflects a marginal recovery in economic activity

  Strengths

  Both manufacturing and services expanded slightly, with improvements in new orders and trade-related sub-indices.

  Weaknesses

  Construction remains in contraction, the employment sub-index is below 50, and price transmission is unfavorable for margins.

  Comparison

  June manufacturing PMI and non-manufacturing PMI were both higher than in May and above Goldman Sachs' forecasts and Bloomberg consensus expectations.

  Risks

  If the construction sector remains weak or external demand improvement proves unsustainable, the strength of the macro recovery may be limited.

• Manufacturing-related Equities and Industries

  Improvement in manufacturing PMI and orders may support activity expectations

  Strengths

  New orders and output sub-indices were above 54 in industries such as agricultural and sideline food processing, special equipment, computers, communications, and electronic equipment.

  Weaknesses

  Activity weakened in chemical fiber, rubber and plastic products, ferrous metal smelting, and rolling processing.

  Comparison

  PMI for medium-sized enterprises rose to 50.5, while PMI for large and small enterprises fell to 50.7 and 48.2, respectively.

  Risks

  With output prices falling while input prices remain high, earnings elasticity may lag improvements in revenue or production.

• Commodities and Energy-related Assets

  The decline in price sub-indices is related to the recent pullback in commodity prices, especially oil prices

  Strengths

  After concerns over Middle East supply disruptions eased, tanker traffic through the Strait of Hormuz increased, helping reduce price pressure.

  Weaknesses

  The input cost sub-index remains above 50, indicating that corporate cost pressure has not fully dissipated.

  Comparison

  Input costs fell from 60.5 to 54.2, while output prices dropped from 51.9 to 48.2.

  Risks

  If geopolitical supply disruptions intensify again, cost pressures may return.

Key data

• Official Manufacturing PMI50.3June reading; Goldman Sachs forecast 49.9, Bloomberg consensus 50.1, versus 50.0 in May.
• Official Non-manufacturing PMI50.2June reading; Goldman Sachs forecast 49.9, Bloomberg consensus 49.9, versus 50.1 in May.
• Manufacturing New Orders Sub-index51.2Was 49.9 in May, making it the largest increase among the major sub-indices.
• Manufacturing Output Sub-index51.4Was 51.2 in May and remained in expansion territory.
• Manufacturing Employment Sub-index48.4Was 48.6 in May, still in contraction territory and down slightly.
• Manufacturing New Export Orders Sub-index50.1Was 48.6 in May and rebounded clearly into expansion territory in June.
• Manufacturing Imports Sub-index49.6Was 48.8 in May, still below 50 but improved at the margin.
• Raw Material Inventory Sub-index48.4Was 48.6 in May, down slightly.
• Finished Goods Inventory Sub-index47.7Was 49.3 in May, showing a more notable decline.
• Input Cost Sub-index54.2Was 60.5 in May, down significantly but still above 50.
• Output Price Sub-index48.2Was 51.9 in May, falling into contraction territory.
• Services PMI50.4Was 50.3 in May, up slightly.
• Construction PMI49.0Was 48.8 in May, still low and below 50.

Impact & implications

The data sends a moderately positive signal for China's short-term growth momentum, especially with improvements in manufacturing new orders and export orders; however, weakness in the construction chain, a low employment sub-index, declining inventories, and falling output prices indicate that the recovery in demand and profitability remains uneven. For markets, the PMI improvement helps ease concerns about slowing growth, but weak prices and construction activity may continue to affect corporate earnings expectations and expectations for policy easing.

Risks

• The construction PMI remains below 50, indicating insufficient recovery in real estate and infrastructure-related activity.
• Weather factors such as high temperatures and heavy rainfall may continue to disrupt outdoor construction activity.
• Input prices remain above 50 while output prices are below 50, putting pressure on manufacturing margins.
• The employment sub-index remains in contraction territory, and the sustainability of domestic demand recovery still needs to be observed.
• Improvement in trade orders may be affected by changes in global demand and the trade environment.

What to watch

• Whether the subsequent NBS manufacturing PMI can remain stably above 50.
• The sustainability of the new orders and new export orders sub-indices.
• Whether the construction PMI can rebound from around 49 back into expansion territory.
• Whether the gap between input costs and output prices narrows.
• Whether divergence widens among service industries such as information technology, finance, insurance, air transport, and real estate services.
• The strength of policy support for real estate, infrastructure, and domestic demand.