HONG KONG, May 31 -- China’s manufacturing purchasing managers’ index fell further in May, suggesting the economy is continuing to slow amid the escalating trade war with the United States. The manufacturing purchasing managers’ index (PMI), a gauge of sentiment among factory operators, fell to 49.4 in May, a decrease on April’s performance of 50.1, and well below the median expectations of a poll of Bloomberg analysts, which had predicted a drop to 49.9. A reading of below 50 means that the activity in the sector is contracting.The 49.4 reading was the lowest since February’s 49.2. Non-manufacturing PMI, which covers the services and construction sectors, remained the same as last month at 54.3, in line with the expectations of the Bloomberg poll. “The fall in the headline index was mostly driven by weaker new orders. Export orders dropped back particularly sharply, which suggests that [US President Donald] Trump’s latest tariff hike may already be undermining foreign demand,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “Stocks of raw materials continued to decline, reversing the build-up of inventories ahead of the 1 April VAT cut that helped to temporarily boost output in March.” The composite PMI, which combines both manufacturing and services activity, was 53.3 in May, a slight decrease on 53.4 a month earlier. An index reading above 50 indicates growth, while anything below 50 indicates a contraction. The dip into contractionary territory for China’s manufacturing sentiment will be a concern to policymakers in Beijing, as they struggle to contain the effect the trade war is having on both economic mood and investment sentiment. While both composite and non-manufacturing PMIs remained above contraction levels, their stagnation points to continued challenges facing China’s economy. The new data, released by the National Bureau of Statistics (NBS), combined with weaker economic data readings for April, suggest that Chinese growth slowed in the second quarter after stabilising at 6.4 per cent in the first quarter. Details of the data show that within the manufacturing PMI, new orders were 49.8, down from 51.4 in April. Output also fell to 51.7, from 52.1 last month, while employment fell to 47.0 from 47.2 and new export orders plunged to 46.5 from 49.2. Within the non-manufacturing PMI, the service sector was up to 53.5 from 53.2 in April, which the NBS said showed that “the service industry continued to maintain rapid growth”.
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