China’s services sector last month expanded at the fastest pace in more than a decade as the easing of COVID-19-related lockdown measures revived consumer demand, a private survey showed yesterday, though companies continued to shed jobs.
The Caixin/Markit services Purchasing Managers’ Index (PMI) rose to 58.4, the highest reading since April 2010, from May’s 55.0, pulling further away from the trough hit in February as the COVID-19 lockdown paralyzed the economy.
The 50-mark separates growth from contraction on a monthly basis.
The rebound suggests China’s overall recovery is becoming more balanced and broad-based, as life slowly returns to normal in one of the world’s biggest consumer markets, although analysts believe it would take months for activity to return to pre-crisis levels.
The services sector accounts for about 60 percent of the economy and half of the urban jobs, and includes many small, private firms that had been slower to recover initially than large manufacturers.
Heavy job losses, pay cuts and fears of a second wave of infections have made some consumers cautious about spending and going out again.
“This [latest survey] suggests the services sector’s recovery is gaining traction,” said analysts at Nomura Holdings Inc, which recently raised its forecast for China’s second-quarter GDP growth to 2.6 percent year-on-year from 1.2 percent.
“However, we caution that the recovery momentum could lose some steam in coming months,” they said.
The Caixin survey showed a sub-index for new business received by Chinese services firms rose to 57.3 from 55.8 in May, with the rate of growth accelerating to the fastest since August 2010.
New export business also expanded for the first time since January on firmer foreign demand, in contrast to overseas orders for manufactured goods, which continued to contract as many of China’s trading partners remained in lockdowns.
Services companies were also able to raise their prices slightly, ending a six-month streak of discounting as firms promote sales, while business confidence over the next 12 months strengthened to a three-year high.
However, employment remained stuck in contractionary territory for a fifth consecutive month, with corporate headcounts falling at a faster pace than in May, highlighting the immense pressure facing Chinese policymakers this year as they vow to stabilize the labor market.
“Although businesses were optimistic about the economic outlook, they remained cautious about increasing hiring, with employment in both the manufacturing and services sectors shrinking,” Caixin Insight Group (財新智庫) said in a statement.
“Addressing the employment problem requires not only macro policies to further promote work resumption, but also more targeted relief measures introduced by governments to tide companies over,” it said.
Caixin’s composite manufacturing and services PMI, also released on Wednesday, picked up to 55.7 last month from 54.5 in May.
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