Insights 
VT 
China’s Caixin / S&P PMI for May 2025 revealed a services reading of 51.1, slightly above the expected 51.0 and the previous month’s 50.7. This suggests an improvement in overall demand and business confidence.
Foreign demand, however, contracted for the first time this year, with new export business experiencing a marginal decline, the first since December. The job market showed slight expansion, ending a two-month contraction, reaching a six-month high.
Rising Input Costs
Input costs increased at the fastest rate in seven months, driven by rising purchasing prices and labour costs. Despite this, prices charged to customers fell for the fourth consecutive month.
The composite index dropped to 49.6, impacted by a lower manufacturing PMI of 48.3, down from the prior 50.4. This composite figure marks the lowest since December 2022, compared to the previous 51.1.
The information just released offers a split picture of economic activity, where certain service-related indicators point upwards, while broader measures are beginning to turn downward again. The services PMI coming in at 51.1 reflects mild growth—nothing spectacular—but a continuation in the right direction, particularly after the previous reading of 50.7. That uptick implies greater business activity and moderately better sentiment among service sector firms.
Yet, when new export orders are factored in, the slight contraction there serves as a warning. This softening external demand—especially after steady growth throughout the year so far—could hint at emerging friction from global demand conditions, suggesting that the external sector is not as resilient as domestic activity just now. It’s important to note that this drop marks the first such decline in new foreign business since December, which we might view as a change in pattern rather than a one-off miss.
The labour market appears to be stabilising somewhat. A small rise in employment, after a couple of months of falling headcount, shows employers are slowly gaining confidence, perhaps trying to stay ahead of expected demand even if figures don’t yet justify aggressive expansion. It’s also notable that we’re at a six-month high in employment growth here—even if the rise is minimal—which suggests hiring managers see future demand holding up, at least in the near term.
Cost Pressures and Future Outlook
Where pressures are building is on the cost side. Input costs jumped at their fastest pace in seven months, mainly on account of pricier raw materials and climbing wages. That’s undeniably uncomfortable in the context of customer pricing, which moved in the opposite direction. Prices charged continued to fall—this is now the fourth straight month—creating further pressure on profit margins. A widening gap between input costs and output prices like this typically forces the hand sooner or later.
When the numbers are brought together in the composite PMI—the broader measure that considers both manufacturing and services—the reading fell sharply to 49.6. This is a retreat below the neutral 50 mark, showing a pullback in overall activity. In fact, it’s the lowest level we’ve seen since December 2022. That’s not a return to contraction territory for services, but the manufacturing PMI played a notable role here. It dropped sharply to 48.3 from 50.4 last month. That shows factory activity reversing course. This combination should rightly make us cautious, particularly as it reflects weakness across both new orders and output.
In weeks ahead, more attention should be paid to divergence between the service sector resilience and manufacturing retreat. We’re entering a period where margins are tightening, volumes show mixed signals, and external demand no longer feels supportive. At the same time, consumer price resistance is evident, as higher costs aren’t being passed through. That tends to squeeze business models more tightly than the headline numbers first suggest.
One approach in the short term may be to focus on relative performance between segments tied to services versus those exposed to international manufacturing orders. Structural shifts in how firms are managing wage pressures and pricing strategy could also translate into higher volatility in producer margins, and eventually earnings. We might want to keep an eye on firms whose cost base is becoming heavier while their pricing power stalls.
Lastly, employment data should not go unnoticed. While encouraging on the surface, job additions without corresponding strength in output may contribute to inefficiencies. That means employers could be tested on productivity before long. If cost input pressures remain elevated, we might also expect capital allocation to adjust—towards automation, or away from hiring-intensive segments. This ought to ripple through expectations near term.
