China Manufacturing Margin Pressures Return and Job Losses Mount; AUD/USD Dips

China Private Sector Sees Pickup in Economic Momentum

China’s private sector data raises new concerns for growth just as Golden Week begins.

The RatingDog Manufacturing PMI increased from 50.5 in August to 51.2 in September, while the Services PMI slipped to 52.9, down from 53.0 in August. Manufacturing sector data drew greater interest, given that tariffs have affected external demand and the broader economy.

According to the September survey,

• New orders rose at the fastest pace since February.
• New export orders increased for the first time since March, though the rate of increase was modest.
• Despite the uptick in new orders, overall staffing levels fell for the third time in four months.
• Average input prices continued to rise, with the rate of input cost inflation the highest in ten months.
• Average selling prices declined in September as intensifying competition forced firms to absorb rising input prices.

On the one hand, the pickup in new orders will provide some relief to policymakers. However, renewed margin pressures will raise concerns. Margin squeezes could lead to further job losses, weighing on private consumption, challenging Beijing’s efforts to boost domestic demand.

Expert Views on China’s Services Sector

Analysts offered mixed interpretations of the data. Yao Yu, founder of RatingDog, commented:

“Overall, September’s PMI improvement was more broad-based. While output prices and employment continued to decline, other major sub-indices posted in expansion territory. Under the influence of the ‘Anti-involution’ policy, input prices continued to rise, while output prices showed a moderate decline, pointing to pressure on profits.”

NBS Private Sector PMIs Signal Economic Slowdown

Earlier in the morning session, the less influential National Bureau of Statistics PMIs signaled a loss of momentum. The Manufacturing PMI increased from 49.4 in August to 49.8 in September, remaining below the neutral 50 level, while the non-manufacturing PMI dropped to 50 (August: 50.3).

The divergence between the private RatingDog PMI and the official NBS PMI reflects differences in survey coverage. The RatingDog survey is more weighted toward smaller, export-oriented firms.

China Policy Pledges Boost Sentiment

September’s PMI data followed Beijing’s latest pledge to bolster the economy. According to CN Wire, China’s NDRC reportedly plans to continue rolling out macro policies and be responsive to shifting economic conditions. Beijing will also introduce further consumer subsidies to boost demand, among other measures.

Monday’s announcement comes at a crucial time, with China’s Golden Week holiday starting on Wednesday, October 1.

US Tariffs Continue to Impact Margins and the Broader Economy

Recent labor market and consumer spending data have raised concerns about demand. Retail sales increased 3.4% year-on-year in August, down from 3.7% in July and falling sharply from 6.4% in March. For perspective, Chinese retail sales have historically averaged 12.09%.

US tariffs have affected external demand, creating price pressures. Firms have reduced staffing levels to limit the effect of margin squeezes, weighing on consumer sentiment and curbing private consumption. China’s unemployment rate rose from 5.2% in July to 5.3% in August, while youth unemployment jumped to 18.9%, up from 17.8% in July and 14.5% in June.

September’s PMI data may provide Beijing with little relief, with the Manufacturing sector’s price trends adding to profit concerns. In August, industrial profits rebounded, rising 20.4% year-on-year after declining 1.5% in July. Notably, the August Manufacturing PMI had revealed that average selling prices had steadied. September’s PMI data shows renewed margin pressures.

The Market Reaction to the Services PMI

Financial markets initially responded positively to the PMI release, though gains were short-lived as margin concerns resurfaced.

The Hang Seng Index briefly rose to a high of 26,785 before falling to a post-RatingDog report low of 26,712.

On Tuesday, September 30, the Index was up 0.52% to 26,761 for the morning session.

In the forex market, the AUD/USD had a more adverse reaction to the PMI data, rising to a post-report high of $0.65845 before sliding to a low of $0.65751 over concerns about profit margins. On September 30, the AUD/USD was trading 0.07% higher at $0.65809.

The Australian dollar remains sensitive to Chinese economic data and US trade policy.

What’s Next? US-China Trade Talks in Focus

Trade developments and stimulus announcements from Beijing will influence near-term sentiment. Progress toward a US-China trade deal and meaningful policy measures to bolster the labor market and boost consumption could lift risk appetite. On the other hand, rising trade tensions and delays to further policy support could weigh on risk assets.

With the Golden Week holiday starting on Wednesday, updates on consumer spending and travel numbers will also require attention.

Discover strategies to navigate this week’s market trends here.