The manufacturing PMI in May was 48.8%, and the photovoltaic industry is playing a big role in economic recovery!
PMI index English full name Purchasing Managers' Index, Chinese means purchasing managers' index, is an index summarized through a monthly survey of purchasing managers, can reflect the trend of economic changes, divided into manufacturing PMI, service PMI, and some countries have established construction PMI.
Each PMI indicator reflects the reality of business activity, while the composite index reflects the overall growth or decline in manufacturing or services. 50% of the PMI index is the waterline between prosperity and drought, above 50% indicates that the economy is developing, and below 50% indicates that the economy is in recession. In May, the mainland manufacturing PMI was 48.8%.
Compared with the macro environment, the days of photovoltaics are simply too good: production and sales are booming, whether it is the domestic market or the overseas market, it is a high increase.
In addition, if you want to boost the economy and boost the manufacturing industry, what is more obvious than the demand stimulation of photovoltaic new energy and other industries?
Of course, we should face the problem head-on, but we should cherish the current good development environment, encourage more energy, and create less panic. Keep repeating the saying: pessimists are closer to right, while optimists are closer to the future.
Source: National Bureau of Statistics
Yesterday, the National Bureau of Statistics released the operation of China's purchasing managers' index for May 2023:
In May, the manufacturing purchasing managers' index (PMI) was 48.8%, down 0.4 percentage points from the previous month, below the critical point, and the manufacturing boom level fell slightly. From the perspective of enterprise scale, the PMI of large enterprises was 50.0%, up 0.7 percentage points from the previous month, located at the critical point; the PMI of small and medium-sized enterprises was 47.6% and 47.9% respectively, down 1.6 and 1.1 percentage points from the previous month, lower than the critical point.
From the perspective of sub-indexes, among the five sub-indices that make up the manufacturing PMI, the supplier delivery time index is above the critical point, and the production index, new order index, raw material inventory index and employee index are all below the critical point:
The production index was 49.6%, down 0.6 percentage points from the previous month, indicating a slowdown in manufacturing production activity.
The new orders index was 48.3%, down 0.5 percentage points from the previous month, indicating that demand in the manufacturing market continued to fall.
The raw material inventory index was 47.6%, down 0.3 percentage points from the previous month, indicating that the decline in the inventory of major raw materials in the manufacturing industry has expanded.
The employment index was 48.4%, down 0.4 percentage points from the previous month, indicating that the employment boom of manufacturing enterprises has declined.
The supplier delivery time index was 50.5%, up 0.2 percentage points from the previous month, indicating that the delivery time of raw material suppliers in the manufacturing industry continued to accelerate.
China Merchants Securities
If we take the upward trend value of PMI in the third quarter of last year as the starting point of this recovery, then this recovery only lasts about 9 months, and compared with previous rounds, the time span and intensity point to the "weak" recovery.
The normalized demand stimulus policy seems to be ineffective, prices have weakened for three consecutive months, and logistics demand has been weaker than in previous years. The weakness of prices and logistics both points to the lack of economic vitality, which seems to reflect the "guaranteed handover" policy, as well as the normalization of fiscal front-loading in recent years, the pulling effect on demand is getting weaker and weaker, and the market is expecting further stimulus policies.
In addition, after manufacturing, the repair of the service sector has also slowed. In May, there was a "May Day holiday", and under the festive effect, tourism travel and offline consumption were more active, driving the business activity index of railway transportation, air transportation, accommodation, catering and other industries to be in the higher economic range above 55.0. However, the divergence between the number of trips and the income of the tourism industry has indicated the lack of consumer confidence in the residential sector. At present, employment and household income have not improved significantly, residents' confidence is still weak, and the foundation for the prosperity of the service industry is not solid, but the resilience is slightly stronger than that of the manufacturing industry.
Taken together, the pullback in the May PMI was expected, but the retreat still exceeded previous market expectations. The continued weakening of the fundamental margin may have started a small recession cycle. The current recovery, which began in the third quarter of last year, lasted only nine months, which is significantly shorter than previous cycles. The bond market has also entered the pricing of "re-recession" in advance, but the micro overheated trading sentiment still needs to be digested, and the combination of "macro cold and micro hot" is more similar to mid-2021.
Ping An Securities
Weak demand in the manufacturing sector is prominent, dragging down production, prices and investment performance.
1) New orders are significantly weaker than existing orders, reflecting weaker demand; The fixed base of the new export orders index fell further year-on-year, and the support of external demand on the manufacturing sector may not have strengthened in May.
2) The finished product inventory index and raw material inventory index are at the 88% and 28% decile levels since 2012, respectively, reflecting the "active destocking" of the manufacturing industry.
3) The purchase price index of major raw materials continues to decline, according to which the PPI in May will fall further to -4.8% year-on-year from -3.6% in the previous month.
4) The production and business activity expectation index returned to the 25% level since 2013, pointing to a possible lack of confidence in manufacturing investment.
5) The prosperity of large enterprises and small and medium-sized enterprises is differentiated, and the dominance of large enterprises may not be conducive to the restoration and improvement of the confidence of private entrepreneurs.
According to the data interpreted by the National Bureau of Statistics, the performance of the industry in May showed the following characteristics: the manufacturing industry was still the best in the midstream industry, while the raw material industry was the main drag; The service industry, mainly driven by contact industries and the digital economy, contracted in the real estate and financial industries.
In summary, China's economic growth momentum weakened month-on-month in May. In this case, we believe that the timing of macro policy increase may be earlier (previously expected around the Politburo meeting in July):
First, in monetary policy, interest rate cuts have become optional, in the case of the downward shift of the price center, the real interest rate level to drive the economy down, coupled with the decline in corporate earnings and return on investment, it is necessary to further promote the decline of the nominal interest rate of loans (especially the interest rate of existing housing loans).
Second, in terms of fiscal policy, promote the acceleration of the issuance of local special bonds and the introduction of a new batch of policy-based financial instruments. Due to the limited recovery of land transfer revenue, there is still a funding gap for local governments to maintain the growth of infrastructure investment this year, and fiscal and "quasi-fiscal" policies similar to last year are needed to increase their efforts. Fiscal reform aimed at the transformation of the "land finance" model may also gradually enter the agenda.
The third is to launch major industrial construction projects, supplemented by corresponding structural monetary policy tools, fiscal discount tools, etc., to accelerate the implementation of the requirements of the first meeting of the 20th Central Finance and Economic Commission to "accelerate the construction of a modern industrial system" (promote industrial intelligence, greening, integration, and build a modern industrial system with integrity, advanced and safety).
Minsheng Securities
Objectively admitted, the May PMI data was weaker than market expectations.
The manufacturing PMI in May was below the boom and bust line, which the market had already expected. Whether it is high-frequency real estate sales volume prices, cement mill operating rate, rebar apparent consumption and other high-frequency data, it has been suggested that the physical data will be weak in May.
However, both in terms of historical quantiles and month-on-month trends, the May PMI was weaker than market expectations. Less than 49% of manufacturing PMI readings are below the 5% decile for the same period in history, only slightly higher than last year's peak (November-December 2022).
May PMIs fell 0.4 percentage points month-on-month, outpacing historical seasonal performance (2015-2019, May manufacturing PMI averaged -0.02% month-on-month). The stock market and exchange rate weakened slightly after the May PMI data. At the end of early trading, the yuan broke through 7.1 against the dollar. The Shanghai Composite Index, Shenzhen Component Index and ChiNext Index fell by 0.74%, 0.95% and 1.2% respectively. It also suggests that today's market may be pricing in weaker-than-expected domestic economic fundamentals.
The good news of bad news, the fastest period of decline in real economy data in the short term may be over. Linking the March-May PMI this year, we get a picture of a gradual decline in economic momentum.
In March, the economy came out of the peak of the epidemic, the resonance of supply and demand was repaired, and part of the demand came from the peak expression at the end of last year. So production, orders, employment, and various indicators in March performed well.
In April, the short-term surge in demand receded after the pandemic, so demand-related sub-items in the PMI, such as new orders and new export orders, fell rapidly, and production and employment performed flat.
Production weakened further in May, coupled with weaker global bulk prices, and the larger month-on-month decline in May was in the production and price sub-items. The PMI of production, ex-factory price and purchase price of major raw materials fell by 0.6, 3.3 and 5.6 percentage points, respectively, from the previous month.
It is expected that the month-on-month momentum of economic growth in the first to third quarters of this year will be weaker overall. And there are two high probabilities:
First, the first quarter of this year, especially in March or the high point of the year.
Second, the economy returned to post-pandemic normalcy in April, and the month-on-month momentum decline in April was the largest in the year. This also explains the sharp rise in bonds in April, the general downside, and the contraction of equity risk appetite. Entering May, the PMI showed that the growth momentum had not stabilized, but the decline had clearly converged.
It is expected that the month-on-month decline in the real economy in the future is more likely to be lower than in April. It's not hard to see why, following the May PMI data, the bonds that are most sensitive to macro data were priced calmly. From focusing on financial balance sheets to focusing on policy. We have been optimistic about the macroeconomy, focusing not on how high the real GDP growth rate is, but on whether the country's balance sheet can improve, which is why we are highly focused on property sales volume and prices this year.
Soochow Securities
PMI: The coldest May, who will be the first to press and endure?
◼ The PMI of 48.8 is indeed not good-looking, refreshing the all-time low in May, but from the perspective of the market, the interpretation of this data is very subtle. At worst, the momentum of the manufacturing industry has further declined compared with April, and the logic of recovery is "precarious"; However, from another point of view, after all, since the end of April, the market's confidence in the economy has fallen into a pessimistic "quagmire", which has been clearly reflected in the price of stocks, foreign exchanges, merchants and other assets, and the continuous slowdown of the economy has undoubtedly increased the probability of policy introduction - from the historical PMI for two consecutive months or more below 50, policy, especially monetary policy, will not stand idly by. Therefore, the interpretation of the May PMI may not be too pessimistic.
◼ The manufacturing PMI cooled again across the board in May. The May manufacturing PMI continued to sit below the boom-bust line, recording 48.8% (-0.4pct m/m). Looking closely at the sub-data, demand, production, inventory are cooling down in all aspects. We believe that weak demand is the biggest pain point: weak demand has led to insufficient production momentum for manufacturers, and manufacturers have a difficult destocking process, which makes the recovery of the manufacturing industry "difficult to move".
◼ Insufficient domestic and foreign demand remains a constraint. The new orders index representing domestic demand and the new export orders index representing external demand both fell below the boom and bust line in May: on the domestic side, the PMI new orders index recorded 48.3% (-0.5pct month-on-month) in May; on the external demand side, the PMI new export orders index recorded 47.2% (-0.4pct month-on-month). According to the enterprise survey, the proportion of enterprises reflecting insufficient market demand was 58.8%, which not only reached a record high, but also exceeded 50% for 11 consecutive months, and the continued lack of market demand made the economic recovery momentum weak.
◼ Weak demand drags down production and remains the main reason for the lack of momentum in the manufacturing sector. Similar to the demand-side performance, the May PMI production index also fell below the boom and bust line, recording 49.6% (-0.6pct month-on-month). In addition, PMI purchases were 49.0% (-0.1pct m/m) and PMI employees were 48.4% (0.4pct qoq), indicating that the willingness of manufacturing to produce is still weak. Combined with the various high-frequency data on the production side in May, many indicators such as blast furnace operating rate and asphalt operating rate indicate that the pace of production in May slowed down.
◼ The road to the warehouse is still long. In the first quarter, the PMI new orders and new export orders index were "short-lived", and the inventory cycle appeared passive destocking on the surface. But in fact, with the basic release of the backlog of demand in the early stage, enterprises have returned to the initiative to destock, and the lack of domestic demand is still a sore spot. Overall, the road to destocking is still long, and we expect the destocking phase to continue at least until the third quarter.
◼ Price signals are weak under insufficient demand. Affected by factors such as the continuous weak operation of domestic and foreign market demand and the continuous decline in commodity prices, the market price of manufacturing products in the mainland has continued to decline. The purchase price index and factory price index were 40.8% (-5.6 pct m/m) and 41.6% (-3.3pct m/m) respectively in May, both of which declined for three consecutive months.
◼ The pressure on the development of small and medium-sized enterprises remains. Unlike the rise in large enterprise PMIs, mid-cap PMIs and small business PMIs were 47.6% (-1.6pct m/m) and 47.9% (-1.1pct m/m) in May, respectively. The vitality of the market economy is still insufficient, but with the gradual implementation of various measures to optimize the business environment, small and medium-sized enterprises are expected to recover steadily.
◼ The non-manufacturing sector is still the reason why the aggregate policy remains strong, but the prosperity is weakening. The construction PMI and service PMI remained above the boom-and-bust line in May, achieving 58.2% (-5.7pct m/m) and 53.8% (-1.3pct m/m) respectively. The decline in the two major non-manufacturing PMIs has also lit up a "warning light" for economic recovery, and how to continue to make the construction industry and the service industry continue to make efforts is still the top priority of the policy.
◼ For the current market, the most feared thing is not poor economic data, but "robust" data performance. As we mentioned in previous reports, there are three main macro scenarios for the current market disruption of the stock game:
The economy performed better than expected, and market sentiment turned systematically;
The economy has weakened across the board, and policy has struck again;
Foreign capital inflows on a large scale.
Therefore, the economic difference has the opportunity to "shine", and the market is most worried about "stability" - in the case of a weakening of the overall economy and sentiment, there are always one or two important economic data "bright" performances, resulting in policy hesitation.
The May PMI data at least confirm that the slowdown continues, and the longer this lasts and the more consistent the data is, the more likely policy is to be introduced.