China Caixin Manufacturing PMI Continues to Expand in December but Slows Amid Weak Domestic and External Demand

By TrendForce

2025-01-02

The December Manufacturing Purchasing Managers' Index (PMI) report from Caixin, which reflects the conditions of small- to medium-sized and export-oriented enterprises in China, showed the PMI expanding for the third consecutive month. However, growth fell short of expectations due to the limited impact of policy stimulus and concerns over trade policies under former President Trump.

The Caixin Manufacturing PMI stood at 50.5 in December, down 1.0 percentage point from the previous month, according to Caixin on January 2. While it marked the third consecutive month of expansion, it fell significantly short of market expectations of 51.7.

This is similar to the official PMI data released by the China National Bureau of Statistics (NBS) on December 31, which showed the manufacturing PMI at 50.1, a decline of 0.2 percentage points from the previous month and slightly below market expectations of 50.3.

The new orders index expanded for the third consecutive month, while the production index maintained its growth streak for the 14th consecutive month. However, both indices showed slower growth compared to November. Employment continued to contract, reflecting limited effectiveness of current policies in stimulating domestic demand.

External demand also weighed on growth, with the export index returning to contraction territory after hitting its highest growth rate since July in November. Surveyed firms attributed the decline in overseas demand for Chinese products to weak global economic conditions and pessimistic trade outlooks, particularly for investment goods and intermediate goods.

Although businesses continued to replenish inventories, extending purchasing activity growth for a third straight month, respondents noted that the restocking was only to maintain safe inventory levels.

At the same time, rising raw material costs pushed input prices higher, but weak domestic and external demand, coupled with intense market competition, forced companies to lower selling prices further, deepening the contraction in output prices.

While small- to medium-sized and export-oriented manufacturing firms in China continued to expand, weak domestic and external demand, uncertain prospects, and pricing pressures dampened business confidence. Firms reduced hiring further, and overall expansion momentum slowed.

Since September, the Chinese government has introduced multiple major easing and stimulus measures. However, recent economic data suggest mixed results, raising questions about the policies’ effectiveness and sustainability. The upcoming Two Sessions in March will be a critical moment to determine whether China’s economy can return to stable growth this year.

China's Manufacturing PMI Expands for the Third Consecutive Month in December

The National Bureau of Statistics of China released its December Purchasing Managers' Index (PMI) report, indicating that the manufacturing PMI expanded for the third consecutive month. This growth was driven by the dual effects of the "Two New Policies"—large-scale equipment upgrades and consumer goods trade-in programs—as well as a rush in exports. However, detailed data suggest that the expansion in demand may be a short-term effect. Manufacturing China’s manufacturing PMI for December came in at 50.1, a slight decline of 0.2 percentage points from the previous month and slightly below market expectations of 50.3. Among the sub-indices, the production index dipped by 0.3 percentage points to 52.1, while the new orders index rose by 0.2 percentage points to 51.0. The supplier delivery time index continued to expand, rising 0.7 percentage points to 50.9. However, raw material inventories remained in contraction, edging up only 0.1 percentage points to 48.3. Similarly, the employment index stayed in contraction territory, slipping 0.1 percentage points to 48.3. Other indices showed mixed results: the new export orders index increased by 0.2 percentage points to 48.3, reflecting continued export demand, while price indices fell. Input prices dropped to 48.2 (from 49.8), and output prices decreased to 46.7 (from 47.7). Business expectations remained in expansion but dipped slightly by 0.6 percentage points to 53.3. Overall, the manufacturing sector benefited from supportive policies and export rushes ahead of potential U.S. tariff changes, with production and new orders sustaining expansion. However, internal demand improvements were limited, as indicated by weak inventory levels and the new orders minus finished goods inventory decline to 3.1 (prior 3.4). Soft hiring and falling output prices also suggest that the expansion may primarily reflect short-term boosts rather than sustained domestic demand recovery. Read more at Datatrack Non-Manufacturing In the non-manufacturing sector, the non-manufacturing PMI for December stood at 52.2, a significant increase of 2.2 percentage points from the previous month. Breaking down by sub-sectors, the business activity index for the construction industry rose sharply by 3.5 percentage points to 53.2, reflecting accelerated construction progress by some firms ahead of the Lunar New Year holiday. Meanwhile, the business activity index for the services sector increased by 1.9 percentage points to 52.0. However, performance varied across industries. Indices for transportation, communications, and finance exceeded 55, while sectors such as catering, accommodation, and resident services remained in contraction territory. In other sub-indices, the new orders index rose significantly by 2.8 percentage points to 48.7, reflecting increased construction demand ahead of the Lunar New Year, with the new orders index for the construction sector jumping 7.9 percentage points to 51.4. In contrast, the services sector saw a modest increase of 1.8 percentage points, remaining in contraction territory at 48.2. Input prices continued to rise, entering expansion territory at 50.5 (prior: 49.1), but sales prices stayed in contraction at 48.8, highlighting weak demand and intensifying market competition, which made it difficult for businesses to pass on costs. Meanwhile, employment conditions mirrored those in the manufacturing sector. The employment index edged up slightly by 0.4 percentage points to 45.8, indicating that businesses remain cautious about future demand. Overall, while the services sector expanded further in December, disparities among industries were evident. The increase was mainly driven by construction activity due to pre-holiday demand, but the services sector's new orders index remained in contraction, signaling weak domestic demand recovery. Additionally, in an environment of subdued demand and heightened competition, the rise in input prices was not matched by an increase in sales prices, underscoring businesses' struggles to transfer cost pressures. The persistently low employment index further reflects limited confidence in future demand, raising concerns about the sustainability of demand expansion, similar to challenges in the manufacturing sector. Read more at Datatrack

2025-01-03

U.S. Initial Jobless Claims Hit an Eight-Month Low

The U.S. initial jobless claims falling to lowest level in nearly eight months, while continuing claims also dropped to a three-month low, signaling continued strength in the U.S. labor market. Initial jobless claims fell to 211,000 last week, a decrease of 9,000 from the revised figure of 222,000 in the previous week, according to the Bureau of Labor Statistics (BLS) on January 2, marking the lowest level in eight months. The four-week moving average declined to 223,250, down 3,500 from the prior week’s revised average of 226,750. Continuing jobless claims totaled 1,844,000, down by 52,000 from the revised figure of 1,896,000 the previous week, hitting a three-month low. In September, the Federal Reserve expressed confidence in inflation returning to its 2% target and suggested that the labor market had cooled to a balanced state. However, further labor market cooling could raise the risk of deterioration, prompting the Fed to begin cutting rates. Recent data, however, indicate sustained labor market resilience. Since peaking at 4.3% in July, the unemployment rate has gradually declined to the 4.1%-4.2% range. Nonfarm payrolls have remained at a healthy level of 100,000–200,000, and initial jobless claims have shown a steady downward trend since their July peak. While continuing claims had climbed to a three-year high in recent months, this trend does not point to an economic recession or widespread layoffs. Instead, it reflects structural changes in the labor market. Companies have reduced hiring rather than resorting to mass layoffs to scale down their workforce, resulting in longer job searches for unemployed individuals. This shift underscores that the labor market is moving toward equilibrium after years of overheating, rather than experiencing a substantial weakening. The U.S. unemployment rate and nonfarm payroll data for December will be released on January 10. If the unemployment rate remains stable and nonfarm payrolls continue at healthy levels, it could further solidify expectations for a two-rate-cut scenario from the Fed this year. The progress of core inflation cooling will likely play a critical role in shaping the Fed's approach to adjusting its rate-cut trajectory. Read more at Datatrack

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