China’s manufacturing sector expanded at a slower pace in January, while factory employment levels declined at the fastest rate in nearly five years, underscoring rising trade uncertainties, according to a private-sector survey released on Monday.
The Caixin/S&P Global Manufacturing Purchasing Managers' Index (PMI) fell to 50.1 in January from 50.5 in December, missing expectations of an unchanged reading. This decline pushed the index to a four-month low, though it remained above the 50-mark that separates expansion from contraction.
Despite the slowdown, the Caixin PMI performed better than the official manufacturing survey released last week, which indicated a contraction in factory activity at the start of 2025. The weaker-than-expected data reinforces calls for additional policy support to sustain China’s economic recovery.
Dr. Wang Zhe, Senior Economist at Caixin Insight Group, commented: “Supply and demand continued to expand. Some downstream manufacturers increased inventories amid an improving market. Manufacturers’ output and demand both grew at a slightly faster clip, with the gauge for output remaining in expansionary territory for the 15th consecutive month, while total new orders rose for the fourth straight month."
However, new export orders declined for the second consecutive month, reflecting ongoing trade pressures. The slowdown coincided with escalating global trade tensions following former U.S. President Donald Trump’s announcement of a 10% tariff on Chinese goods and increased levies on imports from Canada and Mexico, raising fears of a renewed trade war.
Australia’s Manufacturing Sector Shows Signs of Recovery
In Australia, the manufacturing sector showed signs of improvement in January, with output returning to expansion for the first time in a year.
The S&P Global Australia Manufacturing PMI rose to 50.2 from 47.8 in December, marking a marginal recovery in manufacturing conditions.
The increase in the headline index was driven by a rebound in production, softer declines in new orders, and a modest rise in employment levels. However, purchasing activity and inventories fell, and business confidence weakened.
Manufacturing output increased for the first time since November 2022, as firms worked through existing orders. Although new orders remained in decline, the contraction slowed to its weakest pace in nearly two years. Some firms noted early signs of improving demand, but weak consumer spending and subdued overseas business conditions continued to weigh on export orders, which fell at a solid rate.
Employment in the manufacturing sector increased after falling at the end of 2024, as firms sought to manage existing workloads. This rise in workforce capacity contributed to the 26th consecutive month of backlog reductions.
Cost pressures intensified in January, with input price inflation reaching its highest level since November 2022. Manufacturers cited rising input costs and a weaker domestic currency as key drivers. In response, firms raised selling prices at the fastest pace in eight months, passing on higher costs to customers.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence noted: “Rising price pressures will also need to be monitored. Although selling price inflation remains below average, further rises in charges should not be ruled out amid intensifying cost pressures for manufacturers. This could contribute to a delayed start to the rate cut cycle in Australia.”
Despite the improvement in output, overall business confidence declined slightly from December and remained below average. Manufacturers were cautiously optimistic that better economic conditions and promotional efforts could support sales growth in the coming months.
Japan’s Manufacturing Sector Continues to Struggle
Meanwhile, Japan’s manufacturing sector remained under pressure in January, with factory activity contracting at its sharpest pace in 10 months amid weak demand.
The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) fell to 48.7 in January from 49.6 in December, slightly below the flash estimate of 48.8. This marked the seventh consecutive month of contraction, reflecting continued weakness in the sector.
Usamah Bhatti at S&P Global Market Intelligence, said: “In response to subdued demand conditions, manufacturers opted to adjust their inventories by lowering holdings of finished items and raw materials. At the same time, lower production requirements also meant firms lowered input purchases, and at the sharpest rate in nearly a year.”
Output declined for the fifth straight month, with production cuts most evident in the investment and intermediate goods sectors. New orders fell for the 20th consecutive month, with demand from the automotive and semiconductor industries particularly weak.
Overseas orders also declined, though at a slower pace than in December. While sales to the U.S. and mainland China remained sluggish, stronger demand from Taiwan offered some relief.
Although manufacturers remained optimistic about long-term growth, overall confidence dipped to its lowest level since December 2022. Meanwhile, outstanding business levels weakened further, highlighting persistent challenges in the industry.
Despite the downturn, employment remained in expansion as firms sought to hire experienced staff and fill vacancies.
Japanese manufacturers continued to face inflationary pressures in January, with both input and output prices staying elevated. Rising costs added to the sector’s challenges, limiting room for recovery.
