China’s Manufacturing PMI Shows Unexpected Contraction

China’s Manufacturing PMI unexpectedly dropped to 49.1 in January 2025, marking the first contraction in factory activity since September. This result missed both market expectations and December’s reading of 50.1. The decline is seen as the steepest in five months, driven by sluggish factory activity ahead of the Lunar New Year festival.

Key Indicators Show Slowing Economic Activity

The PMI data revealed significant weaknesses in key economic indicators. Factory output contracted for the first time in five months, with the production subindex falling to 49.8 from 52.1 in December. Similarly, new orders saw their first decline since September, dropping to 49.2 from 51.0, the sharpest drop in five months. Additionally, buying activity fell for the first time in three months, with a steep drop to 49.2, the lowest since September.

Persistent Challenges in Foreign Demand and Employment

Despite signs of domestic slowdown, external demand and labor market conditions also showed weakness. Foreign orders contracted to 46.4, down from 48.3, while employment remained unchanged at a weak 48.1. Delivery times slightly shortened, with the index decreasing to 50.3 from 50.9, indicating marginal improvements in supply chain efficiency.

Read More: China Retail Sales

Price Pressures and Shifting Sentiment

On the price front, input costs and selling prices experienced softer declines. Input costs dropped to 49.5 from 48.2, while selling prices eased to 47.4 from 46.7. However, there was a silver lining in the data: confidence among manufacturers rose to a ten-month high, reaching 55.3, up from 53.3 in December. This reflects a more optimistic outlook despite ongoing challenges within the sector.

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