Guosheng: September PMI returns to expansion territory, watch 5 key signals

Guosheng released a research report stating that the September manufacturing PMI returned above the line, while both the services and construction PMIs rebounded beyond seasonal levels, pointing to some recovery in economic momentum in September. Combined with the package of policies including the September 29 interest subsidy and rate cuts, which help stabilize real estate, investment, and expectations, this points to the full-year "ensure 4.5%" target being achievable. Looking ahead, the short-term focus of policy remains on implementation and "making full and good use" of existing policies, including accelerating bond issuance and fiscal expenditure pace, and ensuring the timely implementation of interest subsidy policies. More incremental policies should also follow, with close attention to the "make good use of local government debt carryover limits" explicitly stated at the September 28 State Council executive meeting (carryover limits as of end-2025 are about 1.16 trillion yuan), as well as close attention to consumption-boosting policies. Guosheng's main views are as follows: 1. The September manufacturing PMI continued to recover and returned to expansion territory, while non-manufacturing activity rebounded beyond seasonal levels. The September manufacturing PMI was 50.1%, up 0.3 percentage points month-on-month, slightly weaker than seasonal norms (the median month-on-month change in the September manufacturing PMI from 2016 to 2025 was 0.5 percentage points), returning to expansion territory. The September non-manufacturing PMI was 50.2%, up 1.2 percentage points month-on-month, stronger than seasonal norms (the median month-on-month change in the September non-manufacturing PMI from 2016 to 2025 was 0.4 percentage points), returning to expansion territory. Among these, the services PMI rose 0.9 percentage points, and the construction PMI surged 3.4 percentage points. The September composite PMI output index rose 1.2 percentage points month-on-month to 50.7%. Some regions increased travel subsidies in September, and combined with the early release of transportation and tourism demand during the Mid-Autumn Festival and National Day holiday, this drove the services sector to rebound beyond seasonal levels; the weakening impact of extreme weather, faster special bond issuance, and the gradual implementation of policy-based financial instruments promoted a better-than-seasonal improvement in construction activity. 2. By component, watch 5 key signals in supply and demand, trade, prices, inventories, and employment: 1) Supply improved markedly while demand edged down, and the pattern of supply outpacing demand continued. On the supply side, the September PMI production index was 51.7%, up 1.3 percentage points from last month, stronger than seasonal norms (the median month-on-month change in the September manufacturing PMI production index from 2016 to 2025 was 0.6 percentage points), continuing to expand. Combined with high-frequency data, the operating rate of semi-steel tires for automobiles fell in September, while the PTA operating rate rose sharply; on the demand side, the September PMI new orders index fell 0.1 percentage points to 50.5%, continuing to expand, of which the new export orders index fell 0.1 percentage points, pointing to a marked improvement in supply and a marginal decline in demand, with supply continuing to outpace demand; by industry, the supply and demand conditions in agricultural and sideline food processing, pharmaceuticals, and other industries were at a high level; supply and demand conditions in chemical raw materials and chemical products, ferrous metal smelting and rolling processing, and other industries were relatively weak. In September, the PMIs for high-tech manufacturing, equipment manufacturing, consumer goods, and basic raw materials were 52.5%, 51.0%, 50.7%, and 48.0%, respectively, with month-on-month changes of -0.4, -0.4, +1.7, and +0.1 percentage points. Among these, the high-tech manufacturing PMI has remained above the boom-or-bust line for 20 consecutive months, while consumer goods manufacturing rebounded markedly and returned to expansion territory. 2) The new export orders index edged down, but combined with South Korea's exports in the first 20 days of September and domestic port throughput data, export growth in September is expected to remain strong. On the export side, the September new export orders index fell 0.1 percentage points to 50.0%, underperforming seasonal norms (the median month-on-month change in the September manufacturing PMI new export orders index from 2016 to 2025 was 0.5 percentage points). Overall, export orders fell in July due to typhoon impacts, recovered early in August, and edged down in September, with external demand generally remaining resilient; by high-frequency data, South Korea's exports in the first 20 days of September rose 78.3% year-on-year (previous value 56.0%), and combined with the rebound in the year-on-year growth rate of domestic port throughput, export growth in September is expected to remain strong; on the import side, the September import index rose 0.6 percentage points to 49.2%, still in contraction territory. 3) With the U.S.-Iran situation fluctuating, price indices rose markedly, and September PPI is expected to climb again, while finished goods inventories fell. On the price side, the September main raw material purchase price index rose 4.2 percentage points to 60.8%, and the ex-factory price index rose 3.6 percentage points to 54.0%, continuing a sharp rebound. Repeated fluctuations in the U.S.-Iran situation pushed oil prices up again, and combined with tight inventories and markedly higher prices in downstream chemicals, September PPI year-on-year growth is expected to climb again; on the inventory side, the September PMI raw material inventory index rose 0.1 percentage points to 48.2%, finished goods inventory fell 0.8 percentage points to 47.6%, and purchases rose 0.5 percentage points to 51.0%, pointing to improved demand driving a recovery in production and purchasing willingness, a rebound in finished goods sales, and a decline in inventories. 4) Business activity among small and medium-sized enterprises rebounded, and employment in construction and services improved. In September, the PMIs of large, medium, and small enterprises changed by 0, 0.3, and 1 percentage point, respectively. Large enterprises continued to expand, while business activity among medium and small enterprises rebounded markedly. In September, the employment indices for manufacturing, services, and construction changed by -0.3, 0.4, and 1.3 points month-on-month, respectively. Employment in construction and services improved, but both remained in contraction territory. 5) Services and construction activity rebounded beyond seasonal levels. In services, the September services PMI rose 0.9 percentage points to 50.2%, better than seasonal norms (the median month-on-month change in the September services PMI from 2016 to 2025 was 0.2 points). Some regions increased travel subsidies in September, and combined with the early release of transportation and tourism demand during the Mid-Autumn Festival and National Day holiday, this drove the services sector to rebound beyond seasonal levels. By industry, telecommunications, radio and television, and satellite transmission services, monetary financial services, insurance, and other industries showed relatively strong activity; capital market services, real estate, and other industries showed relatively weak activity. In construction, the September construction PMI rose 3.4 percentage points to 50.3%, stronger than seasonal norms (the median month-on-month change in the September construction PMI from 2016 to 2025 was 1.3 points), returning to expansion territory, mainly due to the weakening impact of extreme weather, faster special bond issuance, and the gradual implementation of policy-based financial instruments. On September 29, the PSL rate was cut by 0.25 percentage points, and the construction of the "six networks" was included in the scope of support, with policy stepping up to stabilize infrastructure. In the short term, continue to closely watch the implementation effects of incremental real estate policies, the pace of government bond issuance, the use of policy-based financial instruments, and progress in the construction of the "six networks." 3. Overall, the September manufacturing PMI continued to recover and returned to expansion territory, while services and construction rebounded beyond seasonal levels, with economic momentum recovering somewhat. In manufacturing, relatively tight inventories partly constrained downstream chemical production, affecting the strength of the manufacturing PMI rebound. In non-manufacturing, with increased travel subsidies, faster special bond issuance, and the gradual implementation of policy-based financial instruments, activity in both services and construction achieved better-than-seasonal improvement. Combined with high-frequency data, property sales across 30 cities continued to decline year-on-year in September, South Korea's exports in the first 20 days and China's port throughput growth rebounded, and the pattern of "strong external demand, weak domestic demand" continued, with insufficient domestic demand still a prominent issue. 4. Looking ahead, pressure to achieve the full-year growth target is not great, and the short-term focus of policy should be on strengthening implementation and "making full and good use" of existing policies, while incremental policies will also be "planned in a timely manner." Overall, although the economy accelerated downward in July-August, considering the recovery in economic momentum in September and the September 29 package of policies helping stabilize real estate, investment, and expectations, the full-year "ensure 4.5%" target should be achievable. The short-term focus of policy remains on implementation and "making full and good use" of existing policies, including accelerating bond issuance and fiscal expenditure pace, and ensuring the timely implementation of interest subsidy policies. More incremental policies should also follow, with close attention to the "make good use of local government debt carryover limits" explicitly stated at the September 28 State Council executive meeting (carryover limits as of end-2025 are about 1.16 trillion yuan), as well as close attention to possible consumption-boosting policies.