The manufacturing industry maintained the expansion trend, and the expansion of non manufacturing industry stabilized. In December, the manufacturing PMI increased by 0.2 percentage points to 50.3% month on month, higher than the market expectation (50.0%), and above the boom and bust line for two consecutive months. After calculation, the year-on-year growth rate of manufacturing PMI decreased from 8.4% in the previous period to 6.7% in December, the decline (1.7 percentage points) was narrower than that in the previous period (2.2 percentage points), and the downward slope of year-on-year growth rate was slightly gentle. Looking forward to the future, the low base effect will be minimized in January 2022, and the rapidly rising high base will drive the PMI year-on-year growth curve of manufacturing industry to continue to decline. In December, the business activity index of service industry increased by 0.9 percentage points to 52.0%, and the business activity index of construction industry decreased by 2.8 percentage points to 56.3%. Under the combined influence of the two, the PMI of non manufacturing industry rebounded by 0.4 percentage points to 52.7%, higher than the market expectation (52.0%).
Manufacturing enterprises of different sizes recovered and differentiated, large and medium-sized enterprises expanded well, and small enterprises continued to shrink. In December, the PMI of large enterprises increased by 1.1 percentage points to 51.3%, the highest in five months; PMI of medium-sized enterprises rose slightly by 0.1 percentage point to 51.3%, on the rise and fall line for two consecutive months; PMI of small enterprises decreased by 2.0 percentage points to 46.5%, with an obvious contraction trend. We believe that the reason for the continuous contraction of PMI of small enterprises comes from the production side, and the production slows down due to the compression of profit space.
The compression of profit margins has led to a slowdown in the production of small enterprises. In December, the production index of small enterprises decreased from 48.8% in the previous period to 45.6%, the lowest since March 2020. We believe that the main reason for the slowdown in the production of small enterprises is the decline in profit margins. Although commodity prices have fallen from a high level, the purchase price changes of enterprises of different sizes are not consistent: the purchase price index of all types of enterprises decreased in December, but small enterprises are still on the rise and fall line. This means that when the ex factory price index (48.2%) falls below the boom and bust line, the purchase price is still rising month on month, resulting in the compression of profit space and slowdown of production of small enterprises. We believe that the current situation will not continue. The decline in commodity prices will drive the purchase price index of small enterprises to continue to decline, and the profit margin will recover.
Under the background of weak overall demand, weak competitiveness led to a significant decline in the new order index of small enterprises. In December, the new order index and backlog order index of small enterprises were 44.2% and 43.2% respectively. Compared with November, the former decreased by 3.4 percentage points and the latter increased by 1.4 percentage points. The reverse change probability of new orders and backlog orders index points to that the production slowdown caused by the compression of profit space leads to the rise of backlog orders index. Under the background of weak demand, the weak competitiveness of small enterprises leads to the obvious decline of new orders index.
Under the guidance of the policy of "ensuring supply and stabilizing price", the trend of increasing inventory is obvious. In December, the manufacturing procurement volume index rose to 50.8% from 50.2% in the previous period, above the boom and bust line for two consecutive months. Affected by the rise in procurement, the manufacturing raw material inventory index rose from 47.7% in the previous period to 49.2% in December, the highest since May 2018. In December, the finished product inventory index rose 0.6 percentage points to 48.5%, the highest since February this year. According to our report (comments on China's macro data in November - cost pressure temporarily lowers the profits of industrial enterprises, and the trend of increasing inventory has not yet peaked), the trend of increasing inventory in manufacturing industry is strong, but the decline of inventory sales ratio is not large. We think we need to pay attention to the recovery speed of demand under the trend of increasing inventory.
Looking ahead, the rebound of the epidemic will lead to greater uncertainty in non manufacturing than in manufacturing. In December, the expected index of manufacturing business activities (54.3%) increased by 0.5 percentage points compared with the previous period, while the expected index of non manufacturing production and operation activities decreased by 0.9 percentage points to 57.3%. We think this reflects the concern about the impact of the current epidemic rebound on non manufacturing industries (especially service industries). Considering that China has repeatedly achieved short-term stable epidemic control in 2021, we expect that the impact of this round of epidemic rebound will not last long. However, the time point of this round of epidemic is special. It is expected that the probability will affect travel and consumption before the Spring Festival, and the impact on the service industry deserves continuous attention.
