Purchasing managers indexes released Sunday showed an unexpected decline in factory activity in April, weighed down by weaker global demand for Chinese exports. Chinese consumers, though, continued to spend on travel and shopping.

The data suggest Chinas recovery remains lopsided, with the production side of the economy lagging the rebound in consumption. That underscores Chinese leaders cautious growth outlook at a meeting Friday and the need for more policy stimulus. 

The mixed PMI figures suggest Chinas post-Covid recovery has somewhat lost steam and calls for continued policy support, said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd.

The Communist Partys Politburo the top decision-making body led by President Xi Jinping left its economic policy stance relatively unchanged on Friday, saying the economy still suffers from insufficient demand.

What Bloomberg Economics Says

The big surprise in Chinas April PMI survey manufacturing fell back into contraction raises doubt about the strength and durability of the recovery. The key factory sector is shrinking despite strong government spending and robust demand in pockets of the services industries. Bottom line: the recovery is probably too narrow to be sustainable and risks losing steam. This worrisome outlook increases the case for more policy support. 

The manufacturing PMI index fell to 49.2 from 51.9 in March the first time since December it was below the 50 mark, which signals a contraction. Sub-indexes for new orders, new export orders and manufacturing employment were all below 50.  

A non-manufacturing index of activity in the services and construction sectors slid to 56.4 from 58.2 in March, suggesting still strong expansion in those industries as consumer spending and government expenditure rose.

Holiday spending figures on the first day of the five-day Labor Day break underscored the recovery in consumption. 

Some 19.7 million railway trips were made across the country on Saturday, the highest on record for a single day, local media The Paper reported, citing official data. Traffic is expected to be 20% higher than in 2019, before the pandemic struck. 

Shoppers were out in force on Saturday too, with major retail and catering companies seeing sales jump 21% from a year ago, according to Ministry of Commerce data cited by state broadcaster CCTV. 

The housing market also continues to recover from very weak levels a year ago. The value of new home sales by the 100 biggest real estate developers climbed 31.6% from April last year,  according to preliminary data from China Real Estate Information Corp. That compares with a 29.2% increase in March. 

The worlds second-largest economy expanded at the fastest pace in a year last quarter, with economists expecting growth this quarter to be even stronger. Several major banks raised their annual growth forecasts to about 6% or higher, expecting the economy to outperform Beijings target of around 5%. 

This weekends data will likely keep policymakers cautious, though.

These mixed signals will likely keep the pressure on the government to continue its supportive fiscal and monetary policies in the second quarter, said  Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd.

The Federal Deposit Insurance Corp. had asked banks including JPMorgan Chase & Co., PNC Financial Services Group Inc., and Citizens Financial Group Inc. to submit offers, according to people with knowledge of the matter. Bank of America Corp. and US Bancorp were also invited but decided against bidding, according to the people, who asked not to be identified discussing confidential talks. 

If no agreement is reached, regulators would have the option of seizing First Republic and taking ownership of the bank. 

Spokespeople for JPMorgan, PNC, Citizens Financial, US Bancorp, Bank of America and the FDIC declined to comment. 

The bidding process kick-started by regulators after weeks of fruitless talks among banks and their advisers could pave the way for a tidier sale of First Republic than the drawn-out auctions that followed the failures of Silicon Valley Bank and Signature Bank last month. Authorities are stepping in after a particularly precipitous drop in the companys stock over the past week, which is now down 97% this year.

Unclear to some involved in the process is whether regulators might use a bid for a so-called open-bank solution that avoids formally declaring First Republic a failure and seizing it. 

The stocks drop leaving the company with a $650 million market value has made such a takeover at least somewhat more feasible.Play Video

Jumbo Mortgages

But finances arent the only hurdle to doing a deal.

JPMorgan is among a small number of giant banks that have already amassed more than 10% of nationwide deposits, making the firm ineligible under US regulations to acquire another deposit-taking institution. Authorities would have to make an exception to allow the countrys largest bank to get even bigger.

As of Friday evening, the FDIC had yet to reach a decision on putting First Republic into receivership, people with direct knowledge of the matter said. Representatives for Californias banking regulator, which would take the lead in declaring whether the San Francisco-based lender has failed, didnt respond to requests for comment.

Weighing on First Republics balance sheet is a mountain of low-interest loans, including an unusually large portfolio of jumbo mortgages to wealthy clients. Such debts have lost value amid interest-rate hikes, leaving the firm facing losses if forced to sell them.

During last months regional banking crisis, wealthy customers and businesses yanked their cash from banks with such flaws in their balance sheets. In response, the Federal Reserve opened up an emergency lending facility to give banks a way to borrow against some of their holdings to meet any demands for cash.

Waiting for Aid

A group of 11 banks that deposited $30 billion into First Republic in March giving it time to find a private-sector solution have proved reluctant to band together on making a joint investment. A few proposals that surfaced in recent days called for a consortium of stronger banks to buy assets from First Republic for more than their market value. But no agreement materialized.

Instead, some stronger firms have been waiting for the government to offer aid or put the bank in receivership, a resolution they view as cleaner and potentially ending with a sale of the bank or its pieces at attractive prices.

But receivership is an outcome the FDIC would prefer to avoid, in part because of the prospect it will inflict a multibillion-dollar hit to its own deposit insurance fund. The agency is already planning to impose a special assessment on the industry to cover the cost of SVB and Signature Banks failures last month.

With assistance from Lydia Beyoud and Max Reyes.