While China’s massive manufacturing sector, in July, contracted at the fastest pace since June 2013, the same cannot be said for the nation’s services sector — activity is soaring.
The latest Caixin-Markit services PMI gauge for July rose to 53.8 from 51.8 in June.
Not only was the reading well above the 50 level that separates sector expansion from contraction, it was the highest level since August 2014.
The chart below is telling. On one hand China’s manufacturing sector, what the nation was traditionally known for, is contracting fast while services — what many, including the government, are pinning their hopes on to propel future growth — is surging.
It is a very encouraging sign, particularly given the many concerns surrounding China’s current economic outlook.
“The stronger rise in service sector activity was supported by a further increase in new business volumes in July. Furthermore, the rate of new order growth accelerated to a solid pace that was the second-fastest in eight months. Anecdotal evidence suggested that stronger underlying client demand and new customer wins led to increased new work at service providers,” Caixin-Markit said.
The group also noted “employment at service sector companies continued to increase in July, with a number of surveyed companies attributing growth to planned company expansions. Moreover, the rate of job creation picked up slightly since June”.
Order backlogs fell while both input and output costs increased.
The sharp increase in services sector activity, in line with the government PMI gauge released last weekend, will no doubt raise expectations for non-industrial economic data for July due to arrive in the days ahead.