China services sector growth slows further in August, inflation pressures rising: Caixin PMI

September 5, 2018

BEIJING, (Reuters) – Growth in China’s services sector weakened again in August as new business picked up only slightly from July’s more than two-year low, a private survey showed on Wednesday.

The downturn in the key part of the economy comes at a trying time for Beijing, which is facing an escalating trade war with the United States that threatens the country’s massive manufacturing sector at a time of a deepening domestic slowdown.

For August, the Caixin/Markit services purchasing managers’ index (PMI) fell to 51.5, the lowest in 10 months, from July’s 52.8. The 50-mark separates growth from contraction.

Government officials have long touted a strong expansion in services as evidence of the economy rebalancing to more sustainable growth, though weaker consumer spending and a housing slowdown may be putting a dent in overall output.

Labour-intensive services industries are taking on a more crucial for generating jobs as factories become more automated and rising costs in China push more manufacturers offshore.

The threat of fresh tariffs from Washington could also add to pressure on factory jobs, as President Donald Trump’s administration is set to decide on imposing duties on another $200 billion of Chinese imports as early as this week.

Caixin’s weaker reading on the services sector followed a separate survey on Monday showing China’s manufacturing activity grew at the slowest pace in more than a year in August, with export orders shrinking for a fifth month and employers cutting more staff.

There were signs of rising upstream cost pressures in the services industry, Wednesday’s survey showed, as input prices rose significantly faster that prices charged. Both were up from July.

Confidence in future business picked up from July’s near-record low, but remained well below the series average, the survey showed. Growth in new business, which in July slowed to the weakest since December 2015, picked up only slightly last month.

Caixin’s composite PMI covering both the manufacturing and services sectors also declined in August, coming in at 52.0 compared with the previous month’s 52.3.

The composite index indicates “that economic growth remained on a downward trajectory. Inflationary pressures were pronounced as increases in both input prices and output prices accelerated,” said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, in a statement accompanying the survey.

With growth softening across China’s economy, policymakers have stepped in to try to cushion the slowdown by pledging more infrastructure spending and an increase in lending.

“August’s PMI readings indicated that the effects of expansionary credit policy and active fiscal policy are yet to kick in. Signs of stagnation emerged as upward pressure on prices remained even though demand weakened at a faster rate.”

(Reporting by Elias Glenn; Editing by Shri Navaratnam)

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September 05, 2018 at 07:25AM
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