Data released on August 31st indicates that the manufacturing sector experienced a modest improvement in business sentiment last month, with a key gauge of activity climbing back towards the expansion threshold.
The official Manufacturing Purchasing Managers' Index (PMI) came in at 49.8% for August, representing an increase of 0.6 percentage points from the previous month's reading. This uptick signals that the overall health of the manufacturing sector has begun to recover, although the figure still remains just below the 50-point mark that separates contraction from expansion.
Looking at the breakdown by company size, a mixed picture emerges. Large enterprises recorded a PMI of 50.6%, which is 1.1 percentage points higher than the previous month and sits comfortably above the critical 50-point line, indicating growth in this segment. In contrast, medium-sized firms saw their index slip by 0.3 percentage points to 49.4%, placing them in contraction territory. Meanwhile, small businesses posted a reading of 47.9%, which is up 0.5 percentage points from the prior month but still signals a continued downturn in their activity levels.
An analysis of the sub-indices that comprise the headline manufacturing figure reveals divergent trends across different operational areas. The production index rose by 0.5 percentage points to 50.4%, suggesting that factory output has accelerated. More notably, the new orders index jumped by 2.1 percentage points to 50.6%, a significant improvement that points to a clear recovery in market demand. However, the raw materials inventory index continued its decline, falling 0.2 percentage points to 48.1%, indicating that manufacturers are still reducing their stockpiles of inputs. The employment gauge within the sector also weakened, dropping 0.3 percentage points to 48.7%, which reflects a cooling in hiring sentiment among manufacturing firms. On a positive note, the supplier delivery time index edged up 0.6 percentage points to 50.1%, implying that logistics and supply chains are accelerating.
Moving beyond the manufacturing sector, the non-manufacturing business activity index held steady at 49.0% in August, unchanged from the previous month. Within this broader category, the construction sector's activity index dipped slightly by 0.1 percentage points to 46.9%, while the services sector's reading remained flat at 49.3%. Digging deeper into specific service industries, postal services, telecommunications, broadcasting, satellite transmission, and internet software and IT services all reported strong performance, with their indices residing in the robust expansion zone above 55.0%. Conversely, wholesale, retail, and capital market services all recorded figures below the crucial 50-point threshold.
Demand conditions in the non-manufacturing sector, however, showed signs of weakening. The new orders index for this broader category fell by 0.3 percentage points to 44.1%. This decline was primarily driven by the services segment, where the index contracted by 0.7 percentage points to 44.5%, even as the construction sub-index actually improved by 2.3 percentage points to 42.4%.
Price pressures within the non-manufacturing sector are beginning to build. The input price index rose by 1.4 percentage points to 51.1%, indicating that the cost of goods and services used in business operations is climbing. This upward movement was evident in both construction, where the index increased by 2.5 percentage points, and services, where it saw a 1.2 percentage point rise. On the output side, the sales price index also ticked up by 1.4 percentage points to 49.3%. Although this figure remains below the neutral line, the narrowing gap suggests that the rate of price decline for business output is moderating.
Employment conditions in the non-manufacturing sector remained challenging, as the employment index was unchanged at 45.4%, still well below the threshold that indicates growth. While the construction segment saw its employment gauge improve by 2.1 percentage points to 43.0%, the services sector's employment index slipped by 0.4 percentage points to 45.8%, underscoring a persistently weak labor market sentiment across these industries.
Looking ahead, business expectations continue to reflect a degree of optimism. The business activity expectations index, while dipping 0.4 percentage points to 55.0%, remains firmly above the 50-point line, suggesting that non-manufacturing enterprises maintain a positive outlook on market development. In the construction sector specifically, this forward-looking index was steady at 51.8%, whereas the services sector saw its expectations ease by 0.5 percentage points to 55.5%.
The composite PMI output index, which offers a broader view of business activity across both manufacturing and non-manufacturing sectors, registered 49.5% for August. This represents a 0.2 percentage point increase from the previous period, indicating that the overall production and operational climate for Chinese enterprises has improved modestly.