Official Chinese purchasing managers' index (PMI) survey data indicate factory activity in China contracted for the third straight month in June as the world's second-largest economy struggles to recover from the impact of the pandemic in the face of slower global demand. The non-manufacturing sector remains in growth territory after Beijing lifted its Covid restrictions on economic activity in December but is losing some steam.

The headline index for the CFLP manufacturing PMI edged up to 49.0 in June after slipping to a five-month low of 48.8 in May from 49.2 in April. It was slightly below the consensus forecast of 49.1. The CFLP non-manufacturing PMI survey's headline index fell to 53.2 from 54.5 in May and 56.4 in April, also falling short of the median forecast of 53.7. The composite index covering the entire economy continued falling to 52.3 in June from 52.9 in May and 54.4 in April.

A reading above 50 indicates an expansion in activity while a reading below it indicates a contraction.

The CFLP manufacturing PMI is expected to improve only slightly in June to 49.1 after contracting further in May to 48.8, while the non-manufacturing PMI is expected to slip to 53.7 from 54.5.

China Federation of Logistics and Purchasing (CFLP) Manufacturing Purchasing Managers Index (PMI) is the monthly survey of about 800 purchasing managers that is conducted jointly by CFLP and National Bureau of Statistics (NBS). The questions focus on the health of the manufacturing sector. The numeric result is a diffusion index. A reading above 50 indicates that manufacturing is growing. A reading below 50 indicates contraction.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures. The CLFP manufacturing data give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. And its sub-indexes provide a picture of orders, output, employment and prices. The survey tends to have a greater impact when it is released prior to the HSBC/Markit manufacturing PMI because the two reports are correlated.