China Feb Caixin Services PMI dips to 51.2 Vs 52.4 (MoM)

Manufacturing companies meanwhile saw a further contraction of output in February, with the rate of reduction quickening to thesteepest since September 2015.

Latest data indicated a softening of growth momentum across China’s service sector, with business activity expanding at only a modest pace. Furthermore, the Caixin China General Services Business Activity Index reading of 51.2 was down from January’s six-month high of 52.4 and pointed to a rate of growth that was much slower than the historical series average. Manufacturing companies meanwhile saw a further contraction of output in February, with the rate of reduction quickening to thesteepest since September 2015.

New business growth also slowed across the service sector in February after a solid rise at the start of the year. Furthermore, the latest increase in new orders was weaker than the long-run trend and only modest, with some panellists commenting on relatively subdued client demand. New orders continued to decline at manufacturing companies, and at a slightly quicker rate than at the start of 2016. Overall, new business was broadly unchanged at the composite level in February, following a marginal rise in January.

Slower increases in both activity and new orders contributed to a weaker expansion of service sector staff numbers in February. Companies that reported higher staff numbers generally mentioned hiring new employees in line with new order growth. Job shedding meanwhile intensified across the manufacturing sector in February, with the latest decline in workforce numbers the sharpest since January 2009. As a result, composite employment fell at a rate that, though modest, was the quickest in six months.

Manufacturers and service providers both recorded lower levels of outstanding business in February. This signalled a second successive monthly decline in backlogs at services companies, while it was the first time that the level of work-in-hand had fallen at manufacturers since April 2015. However, the rate of depletion was only slight across both sectors. Input costs continued their upward trend across the service sector in February. The rate of inflation was modest overall, however, despite quickening to a four-month high. Manufacturing firms saw a further fall in inputprices during February. That said, the rate of deflation was the least marked since August 2014. Consequently, input costs rose slightly for the first time in a year-and-a-half.

Sustained cost inflation at service providers led to the first increase in prices charged since last August, while goods producers continued to discount their selling prices in February. At the composite level, output prices fellat a marginal pace that was the slowest in nine months.

In spite of softer growth, service providers signalled improved confidence towards the one-year business outlook in February. Furthermore, the level of positive sentiment was the strongest in seven months.

Commenting on the China General Services PMI data, Dr. He Fan, Chief Economist at Caixin Insight Group said: “The headline Caixin China General Services PMI for February is 51.2, down 1.2 points from January but remaining above the neutral 50-point mark. The Caixin Composite Output Index for February came in at 49.4, dipping below 50 again, indicating the economy is still weak and unstable. Overall, the services sector has outperformed manufacturing industries, reflecting continued improvement in the economic structure. While implementing measures to stabilize economic growth, the government needs to push forward reform on the supply side in the services sector to release its potential.”