In the June PMI,we believe there are three price signals worth paying attention to.

Signal One: After three consecutive months of rising raw material prices,there was a significant drop this period.The main raw material purchase price index was 50.1% in February,then it rose continuously for three months to 56.9%.In June,influenced by the decline in industrial products,the raw material price index fell back to 51.7%.The main driving factor for the rise in commodity prices from April to May was not domestic demand.From the perspective of micro enterprises,due to the passive increase in raw material purchase prices,the cost pressure on manufacturing enterprises increased.In June,companies reduced their raw material purchases and increased the consumption of inventory raw materials,which correspondingly weakened the support for raw material prices.Looking ahead,we believe that the channel for the upward trend in PPI year-on-year growth has not yet opened.First,in the environment of weak demand,the rise in industrial product prices is hindered; second,after the third quarter,the base number will rise,which is not conducive to the year-on-year rebound of PPI.

Signal Two: The price difference between upstream and downstream has narrowed.The "raw material price index - ex-factory price index" is used to measure the price difference between upstream and downstream of enterprises,and the difference between the two rose to 6.5% in May,a new high since May 2022.The expansion of the price difference between upstream and downstream means that the cost pressure on enterprises has increased.In June,the "raw material price index - ex-factory price index" fell to 3.8%,indicating a marginal reduction in the cost pressure on enterprises.It should be noted that we believe that the marginal alleviation of enterprise cost pressure is beneficial to the stable operation of enterprises in the short term,but in the medium and long term,the core contradiction of whether future enterprise profits can improve may still lie in the demand side.It can be seen that in June,the BCI enterprise profit outlook index fell by 3.3 percentage points to 45.7%,and the decline in cost pressure did not improve the weak expectation of enterprises.

Signal Three: The service industry "trades price for volume".The summer vacation is the peak season for service consumption.With the expectation of the peak season,in June,the business activity expectation index of the retail,accommodation,and catering industries all rose significantly compared to the previous month,and all were at a high level above 59%.Looking back at the past June,the PMI service industry price index generally rose month-on-month,but since the beginning of this year,the service industry price index has continued to be below the boom and bust line.In June,it was 47.4%,down 0.1 percentage points from May.The weak service industry price reflects that the purchasing power of residents still needs to be boosted,and on the other hand,it may have a certain drag on the upward trend of CPI.

Risk factors: Tightening of credit policy; Recovery of overseas manufacturing is less than expected.

Main text

I.Three price signals of PMI

Overall,the June PMI was the same as the previous month,and the change was in line with the seasonal pattern.In June,the manufacturing purchasing manager index was 49.5%,the same as the previous month.Looking at the amplitude of the month-on-month change,from 2017 to 2019,the average month-on-month change of PMI was 0.03 percentage points,reflecting that the current period PMI change is in line with the seasonal pattern.

The problem of insufficient demand is still prominent.In June,the production index in the PMI index was 50.6%,down 0.2 percentage points from the previous month; the new order index fell 0.1 percentage points to 49.5% below the boom and bust line.In the first six months of 2024,the production index was higher than the new order index for five months,and the macro pattern of "supply is strong,demand is weak" continued.Manufacturing enterprises have a strong feeling of weak market demand.In the June enterprise survey,the proportion of manufacturing enterprises reflecting insufficient market demand was 62.4%,up 1.8 percentage points from the previous month.

In the June PMI,we believe there are three price signals worth paying attention to.Signal One: After three consecutive months of upward movement,the raw material prices have significantly dropped this period.The main raw material purchase price index was 50.1% in February,and then it continued to rise for three consecutive months to 56.9%.Influenced by the decline in industrial products in June,the raw material price index fell back to 51.7%.We judge that the main driving factor for the upward movement of commodity prices in April-May was not domestic demand.From the perspective of micro-enterprises,due to the passive increase in raw material purchase prices,the cost pressure on manufacturing enterprises has increased.In June,enterprises reduced the purchase volume of raw materials and increased the consumption of inventory raw materials,and the support for raw material prices was correspondingly weakened.The June PMI purchase volume recorded 48.1%,a decrease of 1.2 percentage points from the previous month.In April-May,the rise in industrial product prices,coupled with the low base of the same period last year,significantly narrowed the decline in PPI on a year-on-year basis.However,looking forward,we believe that the channel for the upward movement of PPI year-on-year growth has not yet been opened.First,in the environment of weak demand,the increase in industrial product prices is hindered; second,after the third quarter,the base will rise,which is not conducive to the year-on-year rebound of PPI.

Signal Two: The price difference between upstream and downstream has narrowed.The "raw material price index - ex-factory price index" is used to measure the price difference between upstream and downstream of enterprises,and the difference between the two rose to 6.5% in May,a new high since May 2022.The expansion of the price difference between upstream and downstream means that the cost pressure on enterprises has increased.In May 2024,the cost for every 100 yuan of operating income for industrial enterprises was 85.37 yuan,which is at a high level since 2017.In June,the "raw material price index - ex-factory price index" fell to 3.8%,indicating a marginal reduction in the cost pressure on enterprises.From the enterprise survey,the proportion of manufacturing enterprises that reflected high raw material costs in June was 43.7%,a decrease of 1.2 percentage points from the previous month,which also confirms this.It should be noted that we believe that the marginal alleviation of enterprise cost pressure is beneficial to the stable operation of enterprises in the short term,but in the medium and long term,the core contradiction of whether future enterprise profits can improve may still lie in the demand side.It can be seen that in June,the BCI enterprise profit outlook index fell by 3.3 percentage points to 45.7%,and the decrease in cost pressure did not improve the weak expectations of enterprises.

Signal Three: The service industry "exchanges price for volume".The business activity index of the service industry in June was 50.2%,a decrease of 0.3 percentage points from the previous month,but still above the critical line.The summer vacation is the peak season for service consumption.Under the expectation of the arrival of the peak season,the business activity expectation index of the retail industry,accommodation industry,and catering industry in June all rose significantly from the previous month,and all were above 59%.Looking back at the past June,the PMI service industry price index generally rises month-on-month,but since the beginning of this year,the service industry price index has been below the critical line,and in June it recorded 47.4%,a decrease of 0.1 percentage points from May.The weak service industry price reflects that the purchasing power of residents still needs to be boosted,and on the other hand,it may have a certain drag on the upward movement of CPI.

II.High-tech manufacturing and export chain performance is eye-catching

The expansion of high-tech manufacturing has accelerated.The high-tech manufacturing PMI was 52.3%,an increase of 1.6 percentage points from the previous month,and the production index was close to 54%,an increase of more than 1 percentage point from the previous month.Looking at the sub-industries,the growth rate of the railway,ship,aerospace transportation equipment manufacturing industry,electrical machinery and equipment manufacturing industry,and computer,communication,electronic equipment,and instrument manufacturing industry increased more significantly.

The export sub-item still has resilience.The new export order in May was 48.3%,a decrease of 2.3 percentage points from April,and the export new order index this month remained the same as in May,without further decline.Looking at the high-frequency indicators,the export performance is relatively good and may continue to be an important driving force for the economy.In June,the port completed more than 6 million TEUs of container throughput,a new high since May 2022.In addition,South Korea's export amount in the first 20 days of June increased by 8.6% year-on-year,higher than the 1.4% in May.

On the other hand,the prosperity of traditional industries is relatively low.The PMI of high-energy-consuming industries and consumer goods industries were 47.4% and 49.5%,respectively,and continued to be below the critical point.The production index of industries such as textiles,petroleum,coal,and other fuel processing industries were all below the critical point; the new order index of industries such as chemical raw materials and chemical products,non-metallic mineral products,etc.,were all operating at a low level.

III.Under the influence of weather,the growth of the construction industry has slowed down

After the "May Day" holiday,the prosperity of the service industry has slightly declined.The business activity index of the service industry was 50.2%,a decrease of 0.3 percentage points from the previous month.After the concentrated release of demand during the May Day holiday,the activities of contact-type consumer-related service industries fell from the previous month under the influence of a high base.The concentrated release of supply and demand in the financial service industry at the end of the quarter and the continued high growth of the information service-related industry have become the main support for the service industry to maintain the expansion range in June,with the business activity index of the financial service industry and the telecommunications service industry both above 60%.

The growth rate of the construction industry has slowed down.Recently,continuous heavy rainfall has occurred in many places in the south,and the construction of the construction industry has been affected to a certain extent.The business activity index of the construction industry was 52.3%,a decrease of 2.1 percentage points from the previous month.The business activity index of the civil engineering construction industry has been above 55% for five consecutive months,and the activities related to infrastructure investment have continued to exert effort.In May,the issuance of long-term special treasury bonds was launched,and the issuance of special bonds has also accelerated recently.It is expected that the available funds for fiscal policy will increase,and infrastructure investment may further be released.