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Prior was 49.3Non-manufacturing 49.5 vs 49.4 priorComposite 49.5 vs 49.8 priorThe malaise in the Chinese economy continues. Worse is that this is headed in the wrong direction and deeper into contractionary territory. You would think sentiment would improve as tariffs are lowered following the US supreme court decision but the domestic economy isn’t helping.The unofficial PMI from RatingDog for February was released shortly afterwards:52.1 vs 50.2 expectedPrior was 50.3Services PMI 56.7 vs 52.3 priorWell this muddies things. This is the best post-pandemic reading and is headed in the opposite direction of the official data. You wonder if this better-captured the US tariff news as this report is more export-oriented.New orders are doing the heavy lifting here. They rose for the ninth straight month and at the fastest clip since December 2020. Export orders in particular stood out, growing at the most pronounced pace since September 2020 — a sign that global demand for Chinese goods is picking back up in a meaningful way.On the production side, output growth hit its highest level since June 2024, with firms ramping up purchasing activity for the second consecutive month. Input stocks expanded at the quickest rate since last August. Suppliers had no trouble keeping up either — delivery times actually shortened slightly.The inflation story is worth watching. Input costs surged to a 44-month high, with metals prices leading the way. Manufacturers passed some of that along, raising output charges for the second month running, though the charge inflation rate only ticked up to a 15-month high. That pass-through dynamic bears monitoring.Employment remains the soft spot. Staffing levels rose only fractionally — the second consecutive monthly increase but still nothing to write home about. Firms are clearly cautious about adding headcount even as backlogs of work build.RatingDog founder Yao Yu struck an optimistic but measured tone: “Overall, February’s data show a strong expansion driven by robust supply and demand, with a notable external demand rebound. Looking ahead, the sustainability of this momentum depends on persistent demand and whether confidence translates into more active hiring and investment.”Business confidence jumped to an 11-month high, with firms citing stronger market demand and new production lines. That’s encouraging, but as Yao noted, the real test is whether this confidence actually flows through to investment and hiring decisions.The manufacturing PMI is expected to hold in expansionary territory near-term, but the durability of this cycle hinges on whether the export strength can persist amid a still-uncertain global trade backdrop.
This article was written by Adam Button at investinglive.com.
đź’ˇ DMK Insight
China’s economic indicators are flashing red, and here’s why that matters: declining non-manufacturing and composite PMI figures signal deeper contraction. With non-manufacturing PMI dropping to 49.5 from 49.4, and composite PMI at 49.5 down from 49.8, traders need to brace for potential ripple effects across global markets. These figures indicate that the Chinese economy is not just slowing but is firmly in contraction territory, which could lead to reduced demand for commodities and impact currencies tied to trade with China. If sentiment doesn’t shift soon, we might see increased volatility in related assets, particularly in commodities and emerging market currencies. It’s also worth noting that despite the recent tariff reductions, the anticipated boost in sentiment hasn’t materialized. This could lead to skepticism among investors, particularly in sectors reliant on Chinese demand. Watch for any further economic data releases from China, as they could provide more clarity on the trajectory of this contraction. Key levels to monitor include the 50 mark on the PMI, which separates expansion from contraction—any sustained readings below this could trigger further sell-offs in affected markets.
đź“® Takeaway
Keep an eye on China’s PMI readings; sustained contraction below 50 could lead to increased volatility in commodities and emerging market currencies.
