January PMI: A Subtle Signal at the Start of the Year

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Source: Chuangyue Global Macro

The January PMI pullback is not entirely to blame on the “seasonal hangover.” The misalignment of the Spring Festival and the delayed holding of local two sessions (local People’s Congresses and political consultative conferences) are key disruptive factors. While both supply and demand are weak and the decline in new orders signals pressure on domestic demand, “price increases” are the biggest highlight: the two major price indicators rise against the trend, indicating an improvement in the PPI. The services sector built momentum ahead of the holiday, the construction sector remains sluggish awaiting additional policy support, and China’s economy is accelerating its shift from “growth rate” to “quality improvement.”

The January PMI pullback may not be attributable solely to the “traditional off-season.” Behind it, multiple rhythmic factors are interwoven. For example, because this year’s Spring Festival comes later, companies’ production arrangements objectively have some room for adjustment; at the same time, most local two sessions have not yet concluded, which may cause some work and project deployments at the start of the year to be slightly delayed, affecting near-term business conditions.

Even more worth attention is that, among the localities where the two sessions have already been held, most have lowered or maintained their 2026 growth targets. This shows that in the opening year of the “Fifteenth Five-Year Plan”—as 2026 is commonly treated as the start—localities are shifting from previously pursuing “growth rate” toward placing greater emphasis on “quality improvement.” The direction of this structural adjustment is also corroborated by the fact that in January, the EPMI (above the expansion/contraction line) and the PMI for high-tech manufacturing are within the expansion zone.

Of course, it is also necessary to see that structural contradictions stemming from insufficient domestic demand still persist. In January, the new orders index of the PMI was 49.2% (down 1.6 percentage points month-over-month); the PMI production index was 50.6% (down 1.1 percentage points month-over-month). The simultaneous weakening on both the supply and demand sides—especially that the demand side contracts slightly more—indicates that current production activities are, to a certain extent, constrained by insufficient orders.

Meanwhile, the PMI new export orders index is also declining at the margin. In January, the PMI new export orders index fell 1.6 percentage points month-over-month. However, compared with historical performance in the same period, the January export orders performance is not too bad. In addition, in January, the port container throughput—at a high level compared with historical同期—also indicates that the outlook for “exports going in” is very likely to continue after the start of the year.

“Price increases” have become the biggest highlight of the January PMI data. Even if the supply and demand sides ease only marginally in January, the two PMI price indicators still rise against the trend: the PMI major raw materials purchase price index in January was 56.1% (up 3.0 percentage points month-over-month), and the PMI ex-factory price was 50.6% (up 1.7 percentage points month-over-month). Behind this, the main driver is that some commodity prices have risen recently. Therefore, there is a fairly high likelihood that the PPI growth rate in January will continue to improve.

The slight pullback in the services sector PMI can be viewed as a stage of “building momentum” ahead of the Spring Festival. In January, the services sector PMI recorded 49.5%, down slightly 0.2 percentage points month-over-month. It is also worth noting that there are “a touch of warmth” even within the services sector—according to the National Bureau of Statistics, “financial market activity is relatively high,” which provides key support for the services sector PMI.

By contrast, the construction sector PMI may require more policy support. In January, the construction sector PMI fell sharply by 4.0 percentage points to 48.8%, a level that is relatively low compared with the same period historically. This change is not only affected by seasonal factors such as cold weather and the approach of the Spring Festival, but it also, to some extent, reflects the real situation that local project construction pacing is still somewhat slow and investment willingness needs further reinforcement.

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