The &#34;Spring Festival effect&#34; gradually dissipated, and the manufacturing PMI rebounded as expected in March. Historically, the month following the Spring Festival typically sees a strong rebound in PMI due to businesses resuming operations. Therefore, the month-on-month increase of 1.4 percentage points in March's PMI is largely in line with seasonal patterns, making the return of PMI to the expansionary zone not entirely surprising.
What is truly worth paying attention to are the detailed signals hidden behind the overall data: both PMI price indicators hit new highs since the second quarter of 2022, with March PPI year-on-year likely to return to positive growth; the new export orders index also recorded its largest value since May 2024, pointing to export resilience. These unusual &#34;micro-level temperatures&#34; are revealing the &#34;underlying color&#34; of the economy in the first quarter.
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The biggest highlight of the March PMI data undoubtedly lies in the price front. The March PMI index for purchasing prices of raw materials recorded 63.9% (month-on-month +9.1pct), and the PMI index for ex-factory prices recorded 55.4% (month-on-month +4.8pct). Both price indicators hit new highs since the second quarter of 2022. Similar to that period, there is currently an imported transmission pressure from high-level fluctuations in international oil prices amidst geopolitical conflicts.
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Influenced by this, the year-on-year PPI in March is highly likely to enter the positive growth range, but the subsequent median level is more noteworthy. A signal that cannot be ignored is that the increase in the PMI raw material purchase price index, which represents upstream, was significantly larger than the ex-factory price index, which represents downstream, in March. This indirectly reflects that price transmission is not smooth. Against the backdrop of insufficient domestic effective demand, if cost pressures in mid- and downstream industries cannot be effectively alleviated to the end consumer, it may evolve into a passive situation of &#34;de-inflation&#34; – this further highlights the importance of current demand improvement and smooth price transmission.
However, the unexpected aspect of this post-holiday rebound is that demand-side pull was stronger than the production side. The March PMI production index was 51.4% (month-on-month +1.8pct). Although its prosperity level remains above the threshold (still above the economic waterline), its month-on-month increase was basically in line with the historical average after the Spring Festival, without significant upside surprises.
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At the same time, from the perspective of the PMI employment index, the scale of returning workers after the festival was slightly lower than in previous years. The March PMI production and operation expectation index also saw a limited increase (only a slight rise of 0.2pct), possibly reflecting businesses' cautious attitude towards future production under high cost pressures.
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In contrast, the demand side performed more brightly. On the domestic demand side, the March PMI new orders index was 51.6% (month-on-month +3.0pct), with an increase far exceeding the seasonal pattern after the &#34;Spring Festival effect&#34; and also reaching a new high in nearly a year. Simultaneously, external demand also showed good performance, with the March PMI new export orders index at 49.1% (month-on-month +4.1pct), the highest value since May 2024, indicating that the &#34;shine&#34; of exports at the beginning of the year is likely to continue.
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The non-manufacturing sector also showed signs of stabilization. With workers returning after the festival, the construction industry PMI experienced a mild recovery in March, rising by 1.1pct month-on-month to 49.3%. However, compared to the construction industry PMI, the performance of the services PMI is more noteworthy – even after the end of the Spring Festival holiday and the slowdown in tourism activities, the services PMI in March still rose by 0.5pct month-on-month to 50.2%, returning to the expansionary range and demonstrating the endogenous resilience of service consumption.
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Manufacturing PMI rose as expected in March, with a month-on-month increase of 1.4 percentage points, in line with seasonal patterns. Price indicators hit a new high since the second quarter of 2022, and PPI year-on-year is expected to return to positive growth. The new export orders index reached its highest value since May 2024, indicating export resilience. Although the month-on-month increase in the production index was in line with the historical average, demand showed stronger performance, reflecting businesses' cautious attitude towards future production

- The March manufacturing PMI rose in line with seasonal expectations, indicating a rebound following the Lunar New Year.  
- Notably, price indices reached their highest since the second quarter of 2022, with new export orders showing significant strength, suggesting resilience in exports.  
- However, a disparity in price increases between raw materials and finished goods may signal challenges in cost management within the industry amid persistent demand pressures.

March PMI: A New Script for Re-entering Expansion