A sustained rebound in China’s services sector triggered a hiring gauge increase for the first time in 2020 and the first increase in employment across the sector since January, an industry survey showed on Thursday.
The Caixin/Markit services Purchasing Managers' Index (PMI) stayed in expansionary territory at 54.0 in August although it declined from July's 54.1, dipping for the second month after June's decade high. This is the fourth straight month of expansion for total new business.
“The composite employment measure rose to expansionary territory for the first time this year. In general, the gauge for business expectations maintained a positive trend,” Wang Zhe, the Senior Economist at Caixin Insight Group, said.
“In the face of increasing orders, many companies expanded hiring, thus pushing up costs, which, coupled with rising raw material prices, led the gauge for input costs to rise further into positive territory.”
The services sector, which accounts for about 60% of the economy and half of urban jobs, had been slower to return to growth initially than large manufacturers, but the recovery has gathered pace in recent months as Covid-19 restrictions on public gatherings lifted.
Higher operational requirements led companies to expand their workforce numbers in August. Though only slight, it marked the first increase in employment across the sector since January.
“It signalled continued recovery in services activity in August. Sub-indexes imply solid new businesses, improvement in services related employment and higher prices,” Goldman Sachs analysts said in a note.
Domestic demand drove new orders, with the Caixin survey showing new export businesses received by Chinese services firms contracting again in August, albeit at a slower pace.
However, the growth in new orders was the weakest in four months and dropped below the long-term average.
But service firms remained optimistic about business prospects as the economy continues to recover from the Covid-19 lockdowns, although a sub-index for confidence in the year dipped from July's multi-year high.
“Surveyed companies stayed optimistic about future business performance, but the degree of optimism moderated from the peak level in July — the business expectation index fell to 57.8 in August from 62.7 in July,” the Goldman Sachs economists said.
“Some surveyed companies expressed cautiousness as they expect the pandemic to continue impacting their business operations in the months ahead.”
China returned to growth in the second quarter after a deep slump at the start of the year, but unexpected weakness in domestic consumption underscored the need for more policy support to bolster the recovery.
Many analysts expect the country to be the only major economy to mark positive annual growth in 2020.
(Additional reporting by Gabriel Crossley at Reuters News)