Event description
On March 31, the National Bureau of statistics released data that the manufacturing PMI fell to 49.5% in March, falling below the boom and bust line.
Event review
Manufacturing PMI fell below the boom and bust line. In March, the national manufacturing PMI fell by 0.7 percentage points to 49.5%, and the boom fell against the seasonality, from expansion to contraction. Among the main sub items, demand fell, production continued to fall, inventory differentiation and prices continued to rise. From the perspective of sub item contribution rate, the significant weakening of new order index is the main reason for the decline of manufacturing PMI. In terms of scale, the PMI of large and medium-sized enterprises fell to 51.3% and 48.5% respectively in March, and the PMI of small enterprises rebounded by 1.5 percentage points to 46.6%.
Supply and demand weakened simultaneously and supply became more resilient. In terms of demand, the new order index and new export order index fell to 48.8% and 47.2% respectively in March, both falling below the boom and bust line. The difference between the two converges to 1.6%, pointing to the frustration of domestic demand. On the supply side, the production index continued to fall to 49.5% in March, falling below the boom and bust line. The difference between new orders and production changed from positive to negative to - 0.7%, indicating that the production toughness is slightly stronger than the demand. Meanwhile, the employment index fell 0.6 percentage points to 48.6% in March, pointing to the weakening of the employment margin.
Price netting expanded and inventory was passively replenished. In terms of price, the purchase price index and ex factory price index of main raw materials continued to rise to 66.1% and 56.7% respectively in March. More importantly, the difference between the two expanded to 9.4%, reflecting the further increase of raw material cost pressure of enterprises. From the micro price data, in March, China's steel, thermal coal and copper prices rose month on month, while overseas oil prices rose nearly 20% month on month. The price of bulk commodities rose both inside and outside, and the pressure can not be ignored. We infer from this that PPI is expected to maintain positive growth in March. In terms of inventory, the raw material inventory index continued to decline by 0.8 percentage points to 47.3%, and the finished product inventory index rebounded by 1.6 percentage points to 48.9%. The deviation of inventory performance reflects that the manufacturing industry is passively replenishing inventory, both production and marketing are blocked, and the operating pressure is increasing.
Infrastructure has driven the boom of the construction industry, and the boom of the service industry has weakened significantly. In March, the non manufacturing business activity index fell back to 48.4%, returning to the off-line. Among them, although the business activity index of the construction industry continued to rise to 58.1% against the trend, it was still lower than the average value in the same period from 2013 to 2021. Combined with the production and sales data of meso steel and cement, the construction industry showed an obvious strengthening signal in mid March after the Winter Olympics. However, with the spread of the local epidemic across provinces and cities, this trend has gradually weakened in the past two weeks. The service business activity index fell 3.8 percentage points to 46.7%. The structural characteristics of the service industry boom are closely related to the epidemic. The boom of contact industries such as accommodation, catering, aviation and railway has weakened significantly, while the demand of communication, postal and storage industries has improved significantly.
The local epidemic superimposed geographical conflicts, and the boom suffered a cold spring. There are two main lines of the epidemic: the basic impact of local economy in January and March; 2) The conflict between Russia and Ukraine led to the rise of major stocks. Under the two main lines, there are four pressures on economic fundamentals: 1) supply and demand weaken against the season, both falling below the boom and bust line; 2) The operating pressure of enterprises has generally increased, the epidemic has affected cross-border transportation, production and sales have been blocked, and enterprises have accumulated passive reserves; 3) The profitability of enterprises is squeezed, the gap between the purchase price of raw materials and the ex factory price of finished products continues to expand, and the profit space continues to narrow; 4) The pressure of industries with more difficulties in the early stage increased instead of falling. In March, the prosperity of small and medium-sized manufacturing enterprises and contact service industry were in a state of contraction, and there were few signs of improvement.
We believe that with the tightening of epidemic prevention and control in the short term and the gradual reduction of willingness to long-term conflict between Russia and Ukraine, the exogenous constraints of the economy will eventually fade. Looking ahead, what are the clues to the boom recovery? From the boom data of different industries in March, there are still two clear clues to the power investment and real estate development: 1) the boom of the electrical machinery industry remains resilient. Under the background of the downturn of most industries, the new orders, production and employment of the electrical machinery industry have improved significantly; 2) The trend of real estate taking over infrastructure has gradually become clear. In March, the boom of the construction industry was supported by civil engineering, but in terms of new orders, new orders for housing construction rebounded against the trend, while PMI and its sub items in the building materials industry rebounded against the trend.
Risk tips
1. The epidemic situation in China has further deteriorated;
2. The strength of steady growth policy is less than expected.
