Recovery weakens in China's services sector

Recovery momentum in China’s service sector weakened a bit in August, a private survey showed on Thursday.

The Caixin/Markit services Purchasing Managers’ Index (PMI) slipped to 54.0 from July’s 54.1, dipping for the second month after June’s decade high, but staying above the 50-mark that separates monthly growth from contraction.

The softening in the index, which surveys more small and medium-sized enterprises in the services sector from eastern coastal regions, contrasted with the rising official PMI for the sector, which firmed up to 54.3 from 53.1.

“Small and medium-sized enterprises in the services sector still face stronger headwinds, due to remaining social distancing requirements and impaired household income, especially for the low-income group,” Nomura said in a note.

Domestic demand showed unexpected weakness, as growth in new orders was the weakest in four months despite a rise in new export orders.

The new orders sub-index fell further to 52.9 in August from July’s 55.3, while the new export orders sub-index rose to 49.1 from July’s 46.6.

However, for the first time this year, firms started to hire more people in August after six months of more layoffs, indicating some signs of recovery in the labor market.

China’s service sector accounts for about 60 percent of the economy and half of urban jobs.

“The improvement in employment relies on long-term improvement in the economy, in which macroeconomic policy supports are essential, especially when there are still many uncertainties in domestic and overseas economies,” Wang Zhe, a senior economist at Caixin Insight Group, wrote in a note.

“The recovery in the services sector is to gather pace in coming months due to the successful containment of COVID-19, which has led to the relaxation of some social distancing rules, including the gradual resumption in inter-provincial tour groups, cinemas and direct international flights to and from Beijing, but the services sector’s recovery will be gradual and bumpy especially in the catering, hotel and passenger transport industries,” Nomura said.