China’s services sector expanded at slower pace in July, weighed down by falling export orders and job losses
- The Caixin/Markit services purchasing managers’ index (PMI), which focuses on smaller, private firms, fell to 54.1 in July from 58.4 in June
- Growth rates of new business and activity remained strong, while sentiment for the upcoming 12 months was the highest recorded since March 2015
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China’s services sector activity continued to grow in July, but the pace slowed from a decade high the previous month as export orders remained weak and firms continued to shed workers, a private survey showed on Wednesday.
But despite the drop, the index remained in positive territory, as growth rates of new business and activity remained strong amid the recovery from the impact of the coronavirus. Confidence surrounding future activity also continued to strengthen, with sentiment for the upcoming 12 months the highest recorded since March 2015.
“The Caixin China general services business activity index came in at 54.1 in July, down from a 10-year high of 58.4 the previous month. It remained in expansionary territory, pointing to a continued rapid recovery of the services sector as the domestic Covid-19 epidemic has largely been brought under control,” said Wang Zhe, senior economist at Caixin Insight Group.
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What is the purchasing managers' index (PMI)?
In the construction sector of the official non-manufacturing PMI, sentiment rose to 60.5 from 59.8 in June, sparked by a building boom, while services morale edged down slightly to 53.1 from 53.4.
The composite output index within the Caixin/Markit services PMI fell to 54.5 in July from 55.7 in June.
Unlike the previous month, the gauge for new export business dropped sharply into contractionary territory as the pandemic continued to hit other nations hard, dragging down overseas demand
“Both the supply of, and demand for, services grew, but weak external demand was a drag. The business activity index and the gauge for total new business both expanded for the third month in a row, maintaining strong momentum. The measure for outstanding business stayed in expansionary territory for a second straight month and rose from June. However, unlike the previous month, the gauge for new export business dropped sharply into contractionary territory as the pandemic continued to hit other nations hard, dragging down overseas demand,” added Wang.
“Employment continued to shrink. The employment gauge stayed in negative territory for the sixth straight month as the recovery of the services sector had a limited uplift on the job market. But the July reading was closer to 50, the line between negative and positive territory, than any of the preceding five months.
“But businesses were highly confident about the economic outlook. The gauge for business expectations rose further into expansionary territory and reached the highest point since March 2015. Service providers generally believed that the toughest times had passed, and were optimistic about their prospects over the next 12 months as economic activity edges closer back to normality.”
