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

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Source: Chuan Yue Global Macro

January PMI decline is not solely due to the off-season; the key disruptions are the timing mismatch of the Spring Festival and the lagging local two sessions. Although weak supply and demand, and falling new orders warn of domestic demand pressure, the highlight is “price increases,” with two major price indicators rising against the trend, indicating PPI improvement. The service sector is building momentum before the holiday, while the construction industry remains sluggish, awaiting policy support. China’s economy is accelerating its shift from “growth rate” to “quality improvement.”

The January PMI decline may not be entirely attributable to the “traditional off-season,” as multiple cyclical factors intertwine. For example, due to the later Spring Festival this year, companies have some flexibility in production arrangements; meanwhile, most local two sessions have not yet concluded, leading to slight delays in some year-start work and project deployments, affecting short-term economic performance.

More noteworthy is that among the regions that have held their two sessions, most have lowered or maintained their 2026 growth targets, indicating that in the first year of the “14th Five-Year Plan,” regions are shifting from pursuing “speed” to emphasizing “quality.” This structural adjustment is also reflected in the January PMI, where the EPMI and high-tech manufacturing PMI remain above the expansion line.

Of course, the structural contradiction of insufficient domestic demand still persists. In January, the new orders index was 49.2% (down 1.6 percentage points month-on-month), and the PMI production index was 50.6% (down 1.1 percentage points). The simultaneous weakening on both supply and demand sides, especially the slightly larger contraction on the demand side, indicates current production activities are somewhat constrained by insufficient orders.

Meanwhile, the new export orders index in PMI also declined marginally. In January, it fell 1.6 percentage points month-on-month, but compared to historical averages, export orders in January are not particularly weak. Additionally, the port container throughput at high levels for this period historically suggests that the “export inflow” trend is likely to continue into the new year.

“Price increases” became the biggest highlight of the January PMI data. Even as supply and demand sides showed signs of slowing, the two major price indicators in PMI rose against the trend—January’s PMI raw material purchase price index was 56.1% (up 3.0 percentage points month-on-month), and factory gate prices were 50.6% (up 1.7 percentage points). This was mainly driven by recent rises in commodity prices. Therefore, the likelihood of continued improvement in PPI growth in January remains high.

The slight decline in services PMI can be seen as a phase of “building momentum” ahead of the Spring Festival. January’s services PMI was 49.5%, a slight decrease of 0.2 percentage points month-on-month. Notably, there is a “warm touch” within the service sector—the National Bureau of Statistics pointed out that “higher activity in financial markets” provided key support for the services PMI.

In contrast, the performance of the construction PMI may require more policy support. January’s construction PMI dropped sharply by 4.0 percentage points to 48.8%, at a relatively low level for the same period historically. This change is influenced not only by seasonal factors like cold weather and the approaching Spring Festival but also reflects the current slow pace of local project construction and the need for further boosting investment willingness.

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Editor: Ling Chen