HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled a third consecutive monthly expansion of Chinese business activity in July. That said, the rate of increase eased from June‟s 15-month high and was moderate overall. This was signalled by the HSBC Composite Output Index posting at 51.6 in July, down from 52.4 in the previous month.
The latest expansion of composite output was led by manufacturers, as business activity at service providers was unchanged from the previous month. Furthermore, it was the strongest expansion of manufacturing output in 16 months. This contrasted with a stagnation of services activity, which was signalled by the HSBC China Services Business Activity Index posting at the no-change mark of 50.0 in July. This was down from 53.1 in June and the lowest index reading in the near nine-year series history.
Total new business placed at manufacturers rose solidly in July, while new order growth at service providers was the weakest in over five-and-a-half years and fractional overall. Anecdotal evidence suggested that subdued market conditions reduced clients‟ willingness to spend. Consequently, new business growth slowed at the composite level and was moderate overall.
Employment trends continued to diverge across both the manufacturing and service sectors during July. Staff numbers were cut at a slower pace at goods producers, while workforce numbers continued to increase at service providers. As a result, composite employment rose for the first time since March, though only slightly.
Outstanding business rose marginally for the second successive month at manufacturers. Meanwhile, backlogs of work at service providers fell at the fastest rate in 20 months. Reports from panellists suggested that unfinished work at service providers declined due to spare capacity that stemmed from relatively weak new order growth.
Input price inflation quickened across both the manufacturing and service sectors in July. The pace of increase was moderate at goods producers, while service
providers saw a solid rise in cost burdens that was the strongest since last November. Nonetheless, the rates of inflation remained weaker than their respective averages.
Following broad stagnation in June, output charges increased slightly at manufacturing firms in July. In contrast, service providers cut their selling prices for the fourth successive month (albeit marginally). Consequently, output prices were little-changed from the previous month at the composite level.
Chinese service providers were optimistic with regard to the 12-month business outlook. That said, the degree of positive sentiment remained historically weak, amid reports that an uncertain economic outlook weighed on overall confidence.