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

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Source: Chuan Yue Global Macros

The decline in January PMI is not entirely due to the usual “off-season blame.” The misalignment of the Spring Festival and the lag in local two sessions are the key disruptive factors. Although both supply and demand are weak and the drop 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 PPI. The services sector builds up momentum ahead of the holidays, while the construction sector remains sluggish and awaits additional policy support. The Chinese economy is accelerating its switch from “growth rate” to “improving quality.”

The decline in January PMI may not be entirely attributable to the “traditional off-season.” Behind it, multiple timing-related factors are interwoven. For example, since this year’s Spring Festival falls later, enterprises’ production arrangements objectively have some room for adjustment. Meanwhile, most local two sessions have not yet concluded, which may cause some early-year work and project deployment to be slightly delayed, affecting short-term business conditions.

What is even more worth paying attention to is that among the localities that have already convened the two sessions, most have lowered or maintained their 2026 growth targets. This shows that in the first year of the “Fifteen-Five” (14th Five-Year) planning period, local governments are shifting from previously pursuing “growth rate” to focusing on “quality improvement.” The direction of this structural adjustment is also confirmed by the EPMI and the PMI for high-tech manufacturing industries in January, both of which were above the breakeven (expansion/contraction) line.

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

At the same time, 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, but compared with historical performance in the same period, January’s export orders do not look particularly bad. In addition, the port container throughput, which is at a high level in January compared with the same period in history, also suggests that the “exports coming in” situation is very likely to be sustained into the start of the year.

“Price increases” have become the biggest highlight of the January PMI data. Even if, in January, the weakening on both the supply and demand sides slows somewhat at the margin, the two PMI price indicators still rise against the trend: in January, the PMI main raw materials purchase price index was 56.1% (up 3.0 percentage points month over month), and the PMI ex-factory price index was 50.6% (up 1.7 percentage points month over month). The underlying driver is mainly the recent rise in prices of some bulk commodities. Therefore, there is a high likelihood that the growth rate of PPI in January will continue to improve.

The slight pullback in the services sector PMI can be regarded as a phase of “building up strength” ahead of the Spring Festival. In January, the services sector PMI came in at 49.5%, down slightly by 0.2 percentage points month over month. It is worth noting that within the services sector, there is also “a touch of warmth.” The National Bureau of Statistics noted that “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%, which is at a relatively low level compared with the same period in history. This change is affected not only by seasonal factors such as cold weather and the approach of the Spring Festival, but also to a certain extent reflects the real situation that the pace of local project construction is slower than desired and investment willingness still needs to be further boosted.

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Editor-in-charge: Lingchen