China’s manufacturing sector contracted in September 2024, with the Caixin China General Manufacturing PMI falling to 49.3, slipping below the 50-point threshold that separates growth from contraction. This marks a downturn from the previous month, driven by a sharp decline in new orders, both domestically and from abroad.

Decline in New Orders and Slower Output

The drop in the PMI reflects significant reductions in new orders, leading manufacturers to scale back purchasing and production. Domestic demand weakened, and export orders saw a considerable decline, indicating broader global economic challenges that are impacting China’s manufacturing sector. Slower output growth accompanied this decline in demand, with manufacturers curbing production in response to lower order volumes.

Employment and Backlogs of Work

Employment in the manufacturing sector also shrank in September, marking a troubling trend as manufacturers reduce labor costs in the face of weaker demand. For the first time in seven months, backlogs of work decreased, suggesting that production bottlenecks have eased, but also highlighting a reduction in overall workload and manufacturing activity.

Price Pressures Easing

Input prices fell at the fastest pace in 15 months, driven by lower raw material costs, providing some relief for manufacturers struggling with elevated costs in prior months. Output prices also declined amid fierce competition, forcing manufacturers to lower prices to maintain market share.

Outlook

The contraction in China’s manufacturing sector raises concerns about the resilience of the country’s broader economic recovery. The decline in both domestic and international demand, coupled with shrinking employment, suggests that the sector may face ongoing challenges in the months ahead. While easing price pressures offer some relief, increased competition and reduced order volumes continue to weigh on the outlook.