The manufacturing Purchasing Managers' Index (PMI) fell by 0.9 percentage points month-on-month to 49.2% in July, slightly below the historical average for the same period, indicating a deterioration in business conditions.
The non-manufacturing PMI also declined by 1.2 percentage points to 49%. Looking ahead, the volume of physical work is expected to accelerate, which should boost demand in the construction sector.
In July, the manufacturing sector's activity level fell back below the 50-point expansion-contraction line, marginally underperforming the average of the past five years for the same month. Demand growth slowed notably due to seasonal factors and extreme weather, while rising oil prices constrained corporate production activities. Looking forward, the second wave of oil price increases this year has not yet fully transmitted to consumer prices, suggesting continued pressure on the profit margins of midstream and downstream companies.
In the non-manufacturing sector, summer tourism and cultural consumption supported the service industry's activity level, partially offsetting the drag from the construction and wholesale sectors. The July Politburo meeting has clearly signaled that macroeconomic policies must be intensified and made more effective. The focus for expanding domestic demand lies on the investment side. Consequently, the implementation of existing fiscal policies is expected to accelerate. Monetary policy will maintain an accommodative stance, aiming to channel macro-level liquidity into real economic demand and help stabilize commodity prices.
The manufacturing PMI for July fell by 0.9 percentage points month-on-month to 49.2%, slightly below the historical average for the same period. Nearly all sub-indices declined. Among the five component indices of the manufacturing PMI—production, new orders, raw material inventories, employment, and supplier delivery times—all remained below the 50-point threshold, highlighting a deterioration in the manufacturing sector's business climate. Specifically, the production index dropped by 1.5 percentage points to 49.9%, the new orders index fell by 2.7 percentage points to 48.5%, and the new export orders index decreased by 0.5 percentage points to 49.6%. The gap between manufacturing output and demand turned negative again, reflecting increased pressure on both domestic and external demand growth, which has begun to suppress production activities.
Regarding price trends, the gap between the manufacturing PMI's output price and input price indices stood at -5.4% in July, narrowing by 0.6 percentage points from the previous month. The output price index was 47.8% (down 0.4 percentage points month-on-month), remaining below the upstream raw material cost index of 53.2% (down 1 percentage point month-on-month). On the inventory front, raw material inventories edged lower in July, finished product inventories rose slightly, and procurement volumes continued to fall. This indicates a marginal slowdown in downstream demand, leading to a passive build-up of inventory for companies. Employment indicators improved slightly but remain weak, suggesting that the momentum for economic recovery needs to strengthen further to break free from contractionary pressures.
In terms of enterprise size, the PMI activity levels for large, medium, and small enterprises all fell below the 50-point threshold in July, marking the first time this year. By industry, the activity levels of high-tech manufacturing and equipment manufacturing remained high. The activity level of consumer goods manufacturing fell below the 50-point mark, while the raw material manufacturing sector remained sluggish. Many industries entered a slow season for operations in July, compounded by frequent extreme weather events in multiple regions, which significantly impacted corporate production and business activities.
The non-manufacturing PMI for July fell by 1.2 percentage points month-on-month to 49%. Within this, the service sector PMI decreased by 0.9 percentage points to 49.3%. The construction sector PMI dropped by 2 percentage points to 47%, and its new orders index slumped by 6.2 percentage points. The construction sector moved into its off-season in July, with construction progress notably slowed by adverse factors such as high temperatures, heavy rainfall, and flood disasters in some areas. Considering that the central budget investment of 755 billion yuan for the year has been largely allocated, and the National Development and Reform Commission's press conference on July 31 mentioned accelerating the implementation of 109 major projects under the "15th Five-Year Plan," the volume of physical work is expected to pick up in the coming period, which should help improve demand in the construction sector.