China’s services sector remains strong, boosted by first employment increase since January
- The Caixin/Markit services purchasing managers’ index (PMI), which focuses on smaller, private firms, fell slightly to 54.0 in August from 54.1 in July
- The official non-manufacturing PMI, released by the National Bureau of Statistics on Monday, was 55.2 for August, up from 54.2 in July
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China’s coronavirus recovery continued as services sector activity remained strong in August, with employment levels increasing for the first time since January, a private survey showed on Thursday.
A reading above 50.0 indicates growth in sector activity, while a reading below indicates contraction.
“The Caixin China General Services Business Activity Index came in at 54 in August, almost the same as the previous month‘s 54.1. The ongoing resumption of work and normalisation of market demand continued to promote the post-epidemic economic recovery,” said Wang Zhe, senior economist at Caixin Insight Group.
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What is the purchasing managers' index (PMI)?
China’s official manufacturing PMI, meanwhile, fell slightly to 51.0 in August. This was below analysts’ expectations, with the median result of a Bloomberg survey predicting it would stay unchanged from July at 51.1.
New orders also increased in August, with higher sales largely driven by firmer domestic demand as new export orders fell for the second month in a row.
The pandemic continued to impact external demand, with the measure for new export business remaining in contractionary territory, dragging down total demand
“Domestic supply and demand in the services sector continued to recover, while there were still uncertainties in overseas demand. Both the business activity index and total new business expanded for the fourth consecutive month, but at a slower pace, causing the gauge for outstanding business to return to negative territory. The pandemic continued to impact external demand, with the measure for new export business remaining in contractionary territory, dragging down total demand,” added Wang.
“Employment started to improve. The ongoing recovery of supply and demand in the services sector had a positive influence on employment, with the employment gauge rising into expansionary territory for the first time since January. In the face of increasing orders, many companies expanded hiring, thus pushing up costs, which, coupled with rising raw material prices, led the gauge for input costs to rise further into positive territory. Due partly to that factor, the gauge for prices that service providers charged customers returned to expansionary territory.”
Overall, positive sentiment did dip to a three-month low in August as anticipation that market conditions will continue to recover were offset by expectations from some companies that the pandemic will continue to impact their business operations and sales.
The composite output index, combining both the manufacturing and services indices, rose to 55.1 in August from 54.5 in July, the second-quickest rate of expansion since December 2010, behind only June 2020.
“Companies remained confident about the economic outlook. In fact, the gauge for business expectations has never dropped into negative territory since the data series began in November 2005. In August, this gauge remained in expansionary territory, but was much lower than the historical average. Some service providers held different views on the outlook for the services sector for the year ahead,” said Wang.
