China's factory activity returns to growth in May

Daniel Fowler
June 2, 2020

Any reading below 50 percent indicates the manufacturing sector is generally contracting.

However, Chinese government data showed a slight contraction in manufacturing activity between April and May. May's reading was 5.2% below the 12-month average of 48.3. The index has been negative for 3 consecutive months.

Among industries, food, beverage and tobacco products remained the only one in expansion, while the rest contracted, with transportation equipment, petroleum and coal products and fabricated metal products posting the biggest declines.

Taiwan's manufacturing activity also fell last month.

Rob Dobson, a director of IHS Markit, said: "Changes to working practices, uncertainty about how long the Covid-19 restrictions may be in place for, weak demand and Brexit worries all suggest the United Kingdom is set for a drawn-out economic recovery".

China's factory activity rose for a third straight month in May as companies got back to business after strict measures to contain the coronavirus were eased, but a deep contraction in export orders means the recovery remains sluggish.

"Employment in the sector continued to contract, but the pace of job shedding did slow appreciably from April", he added. The report noted that the top six manufacturing sectors saw strong employment contraction, resulting from furloughs and layoffs, due to a lack of new orders and stay-at-home directives, with only two sectors, apparel and leather & allied products showing growth in May.

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The Caixin/Markit PMI for China's manufacturing sector came in at 50.7 for May, up from the April reading of 49.4. The threat of a second wave of Covid-19 infections, renewed lockdown measures or government emergency financial support being removed too soon could also rapidly derail the rebound.

"Despite the COVID-19 issues, we are seeing an increase of quoting activity".

Firms reported weaker sales here and overseas due to the lockdown, forcing companies to cut back buying activities and reduce inventories.

"Three months into the manufacturing disruption caused by the coronavirus pandemic, comments from the panel were cautious regarding the near-term outlook", Timothy Fiore, chair of the ISM's manufacturing business survey committee, said in a statement. "That will be proved out in June and July, and we will see what that is".

All manufacturing sectors were impacted by the pandemic in May, Fiore said, adding that it looks to be a month of transition with some returning to work in late May. Some manufacturers, he said, have been aggressive, whereas others have not.

Cooper said May data highlighted further rapid contractions in both output and new orders. "China is an issue, too, because we are going geopolitical with them, and we will see where that goes". "Output prices also increased, but firms tried to keep charge inflation low, hoping this would encourage an improvement in sales once demand conditions have returned to normal".

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