China’s July official services PMI dips to six-month low

PMI figures dip to six-month low as new orders slow last month

PUBLISHED : Sunday, 03 August, 2014, 2:23pm
UPDATED : Monday, 04 August, 2014, 2:07am

Growth in the mainland's services sector slipped to a six-month low in July as new orders rose at their weakest rate in at least a year, data showed, taking some of the shine off an industry that has been a bright spot in the economy this year.

The official purchasing managers' index (PMI) for the non-manufacturing sector slowed to 54.2 in July from June's 55, the National Bureau of Statistics said yesterday. That is the weakest reading since January.

A reading above 50 in PMI surveys indicates an expansion in activity while one below the threshold points to a contraction.

The slight retreat in the services sector came at a time when mainland factories have started to recover, having earlier this year been one of the drags on growth in the world's second largest economy due to faltering demand at home and abroad.

In contrast, services firms have held up through each slowdown since PMI records began in January 2007, with the index staying above 50 in every month.

A mixed performance from other measures in yesterday's PMI suggested that the services sector enjoyed an encouraging, albeit slightly muddy, outlook.

Growth in new orders fell to their slackest rate in at least a year in July. Yet at the same time, companies' business expectations jumped to a level not seen in at least a year. Inflation within the sector, be it production or final sales prices, also quickened to a rate unseen in at least 12 months.

Cai Jin, vice-president of the China Federation of Logistics & Purchasing, which publishes the services PMI in conjunction with the mainland government, advised investors to not read too much into the divergence.

"The volatility in the various sub-indices for the July services PMI was not great," Cai said. "The market in general is still stable."

In contrast, he said weakness in the property sector persisted last month due to seasonal factors and muted demand.

"The market remains subdued. Prices are still in a downtrend, and declines have increased."

The mainland's once-heated housing market has slowed this year as sales and prices retreated in their biggest pull-back in two years, driven in part by a cooling economy, and after the government tried for almost five years to calm the market.

But the extent and breadth of the downturn have surprised analysts, with many worrying that it is the biggest threat to the health of the economy this year.

To limit the drag from a cooling housing sector on the overall economy, nearly half of the regional governments have started relaxing curbs on home purchases this year, reversing controls that were instituted from as early as 2009.

The services PMI followed two manufacturing PMIs released on Friday that showed the mainland factory sector posting its strongest growth in at least 11/2 years last month, suggesting that the economy is gathering steam after a spate of stimulus measures.

Economic growth picked up slightly in the second quarter, accelerating to 7.5 per cent from an 18-month low of 7.4 per cent between January and March.