Behind the Continued Rebound of June PMI

Event: The manufacturing PMI for June 2025 is 49.7% (previous value 49.5%); the non-manufacturing PMI is 50.5% (previous value 50.3%).

Core Viewpoint: The manufacturing PMI in June continues to rebound from a low level, with many sub-indices improving, possibly related to the continuation of "export grabbing" and the accelerated issuance of special bonds; however, the manufacturing PMI, import and export orders, etc., are still in the contraction zone, and the service industry PMI is also below seasonal levels, indicating that the endogenous momentum of the economy remains weak. Looking ahead, it is important to note: although GDP growth was high in the first half of the year, real pressure should emerge in the second half, particularly in August and September, compounded by the weakening domestic real estate market, and policies still need to be tightened. In the short term, focus on two points: the tariff negotiations between the United States and China, and the Politburo meeting at the end of July.

1. Overall, the manufacturing PMI in June continues to rebound from a low level and remains in the contraction zone, while the non-manufacturing PMI shows a slight increase.

2. In terms of structure, both supply and demand, trade, prices, and the prosperity of large and medium-sized enterprises have rebounded, but the prosperity of small enterprises and the service industry has declined.

3. Looking ahead, July belongs to the "four overlapping periods," closely monitor the progress of the U.S. tariff negotiations and the Politburo meeting in July. Key points of focus: 1) The tariff negotiations between the U.S. and China/Europe, closely monitor the two deferral windows on July 9 and August 12; 2) The rhythm of domestic policies, closely monitor the Politburo meeting in July, as well as the State Council meetings and various departmental meetings.

4. Specifically, there are five major signals:

Both supply and demand have rebounded, with more recovery in domestic demand.

Import and export orders have both rebounded, still in the contraction zone.

The price index has rebounded, with the PPI in June expected to still show a significant decline, and inventory has slightly increased.

The prosperity of large and medium-sized enterprises has rebounded, while small enterprises have declined, and employment pressure remains significant.

The prosperity of the service industry has slightly decreased, while the construction industry has seen a seasonal increase.

Main Text:

1. The manufacturing PMI in June continues to rebound from a low level and remains in the contraction zone, while the non-manufacturing PMI shows a slight increase. The manufacturing PMI for June is 49.7%, continuing to rise by 0.2 percentage points from the previous value, stronger than seasonal trends (the median change in PMI from June 2015 to 2024 is 0.0 percentage points), marking the second consecutive month of rebound, but also the third consecutive month in the contraction zone. The non-manufacturing PMI in June rose by 0.2 percentage points to 50.5%, with the service industry and construction industry PMI changing by -0.1 and 1.8 percentage points, respectively. The composite PMI output index rose by 0.3 percentage points to 50.7%, indicating a slight acceleration in overall economic expansion, possibly related to the continuation of "export grabbing" after the easing of U.S.-China tariffs in May, the accelerated use of special bond issuance in the second half of June (for specifics, please refer to "High-Frequency Bi-Monthly Observation - June Continues 'Export Grabbing,' How Substantial Is It?"), and the low base effect from May.

1. In terms of sub-indices, focus on five major signals from the supply and demand side, trade side, price side, inventory side, and employment side:

1. Both supply and demand rebounded, with domestic demand recovering more. On the supply side, the June PMI production index was 51.0%, an increase of 0.3 percentage points from the previous month, continuing to be in the expansion range. From a high-frequency perspective, the operating rate of semi-steel tires in June fluctuated at a high level, and overall traditional manufacturing production remained high. On the demand side, the June PMI new orders index rose by 0.4 percentage points to 50.2%, returning to the expansion range, with the new export orders index increasing by 0.2 percentage points, indicating a rebound in both supply and demand, with domestic demand rebounding more. By industry, food and beverage, and specialized equipment sectors saw rapid growth in supply and demand, while non-metallic mineral products and black metal smelting sectors maintained low supply and demand, possibly related to the low real estate prosperity.

1. Both import and export orders rebounded, but still in the contraction range. On the export side, the June new export orders index rose by 0.2 percentage points to 47.7%, still in the contraction range; from a high-frequency perspective, South Korea's exports in the first 20 days of June increased by 8.3% year-on-year (previous value -2.5%), and export freight rates rebounded from the bottom, indicating that June exports are expected to continue to decline but remain resilient; on the import side, the June import orders rose by 0.7 percentage points to 47.8%, with a larger increase than export orders, indirectly verifying the recovery of domestic demand.

1. The price index rebounded, and the June PPI is expected to still show a significant decline, with inventory slightly rebounding. On the price side, influenced by the recovery of domestic demand and the recent rebound in international crude oil and other commodity prices, the June raw material and factory price indices both rose by 1.5 percentage points. However, considering the high base, the June PPI is still expected to show a significant decline. On the inventory side, the June PMI raw material and finished product inventories rose by 0.6 and 1.6 percentage points, respectively, possibly related to the recovery of domestic demand in June and companies accelerating restocking.

1. The prosperity of large and medium-sized enterprises rebounded, while small enterprises declined, and employment pressure remains significant. In June, the PMI for large, medium, and small enterprises changed by 0.5, 1.1, and -2.0 percentage points, respectively; the employment indices for manufacturing, services, and construction in June changed by -0.2, -0.2, and 0.4 percentage points, respectively, indicating that employment pressure remains significant

2. The service industry experienced a slight decline in prosperity, while the construction industry saw a seasonal increase. In the service sector, the service industry PMI in June fell by 0.1 percentage points to 50.1%, below the seasonal average (the median month-on-month change in service industry PMI from June 2015 to 2024 is 0.1 percentage points). By industry, with the effects of the May Day and Dragon Boat Festival holidays fading, sectors related to consumer travel, such as retail, transportation, accommodation, and catering, saw a decline in prosperity, while telecommunications services and financial services remained relatively strong. In the construction sector, the construction industry PMI rebounded by 1.8 percentage points to 52.8% in June, with the civil engineering business activity index at 56.7%, remaining above 55.0% for three consecutive months, indicating that recent infrastructure projects are maintaining a rapid construction pace.

1. Overall, the manufacturing PMI in June continued to rebound from a low level, but the endogenous recovery momentum weakened. This is largely due to the gradual impact of the U.S. "reciprocal tariffs," which has increased the drag on manufacturing from declining exports; however, the service and construction sectors are supported by policies and show strong resilience. The future outlook for tariffs remains highly uncertain; if the current tariff levels are maintained, exports and manufacturing may face further pressure. Meanwhile, with policies aimed at "vigorously developing service consumption" and expanding domestic demand gaining traction, the service sector is expected to maintain expansion in the short term; the economic structure may continue to show divergence.

2. Looking ahead, July will be a period of "four overlapping phases," closely monitoring the progress of U.S. tariff negotiations and the Politburo meeting in July. It is important to note: although current U.S.-China tariffs are easing, the real pressure is expected to manifest in the second half of the year, particularly in August and September. The overall policy tone remains expansionary, and the direction of expanding domestic demand has not changed, with several incremental policies likely still in the pipeline. July should be characterized as a "tariff negotiation period, economic observation period, existing policy implementation period, and incremental policy preparation period," representing a "four overlapping phases." Two key points to watch: 1) U.S.-EU tariff negotiations, focusing on the two deferral windows on July 9 and August 12; 2) Domestic policy rhythm, focusing on the Politburo meeting in July, as well as State Council meetings and departmental meetings.

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