Faster Growth for Service Companies, as Caixin PMI Climbs to 52.4

(Beijing) – Chinese service providers saw their activity grow at a faster rate in October, as the Caixin China General Services PMI rose to 52.4, compared with September’s 52.

This marked the fastest expansion for the service sector in four months.

Combined with significant improvements for factories, the Composite Output Index, which reflects conditions in both manufacturing and service sectors, rose to the highest level since March 2013 at 52.9. The index for September was 51.4.

For service providers, the new orders segment in October grew at only a moderate rate, but the demand for manufactured goods increased markedly, leading to the fastest increase in total new orders for both sectors combined since November 2014.

Services companies expanded their payrolls for the second month in a row, with the rate of growth edging up to its strongest since January. Firms that hired additional workers generally said they were expanding and expecting orders to continue growing in the future.

However, the index for employment at both sectors combined still fell in October, albeit at the lowest rate in 17 months, due to steeper cuts in staff levels at manufacturers.

Costs grew only moderately for service companies last month, compared with a sharp increase in the price of input material at factories. Together, the inflation of costs for both service and manufacturing companies on average was the strongest in just over five years.

Manufacturers raised their selling prices in October in response to greater costs. Meanwhile, service companies kept their prices little-changed from the previous month, with many citing greater competition as the main reason why they could not afford to charge clients more. Taken together, both sectors’ selling prices increased at the quickest rate since April 2011.

October’s business activity growth was “mainly due to a faster increase in manufacturing output,” said Zhong Zhengsheng, director of Macroeconomic Analysis at CEBM Group, a subsidiary of Caixin Insight Group.

"Overall, the economy continued to expand in October and at a stronger growth rate,” he said. “It may be possible to sustain this stable condition throughout the fourth quarter, but it’s important that supportive policies are not relaxed because the economy still lacks sufficient growth momentum.”

Contact reporter Wang Yuqian (yuqianwang@caixin.com); editor Ken Howe (kennethhowe@caixin.com)