China - PMI details suggest a floor
The PMIs continue to suggest that, overall, there was no lasting improvement in the cycle after the September policy push. There are though some signs that things aren't getting worse any more, with both the construction PMI and employment indicators suggesting a floor.
The bounce in the official manufacturing PMI in February isn't surprising, given the early Chinese New Year and the increase in working days last month. But even after the improvement, the data suggest that the manufacturing sector is barely expanding, with the headline only reaching 50.2. Services activity is weaker still, with the bounce higher at the end of 2024 completely reversing – though some of that is the flipside of the Chinese New Year impact on manufacturing, with the return of people to work reducing leisure time.
So, the cycle isn't improving. However, there are signs that it is at least not worsening any further. The construction PMI, which dropped sharply from late 2022, isn't continuing to drop further. The improvement in employment in both manufacturing and services in recent months has been sustained. And while input prices in the PMI point to upstream prices continuing to fall in February, output prices suggest that last year's sharp drop in core CPI was overdone.
This is all rather tentative. To get more conviction that the cycle has indeed reached a floor, other things need to fall in place, with one key ingredient being a reversal of the flood of household money into time deposits. It does seem that this flow is starting to slow, but it hasn't yet begun to move in the other direction.
