This is worrisome!
Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled reduced business activity in China in December, with the headline Caixin Composite Output Index posting below the neutral 50.0 value at 49.4. This was down from 50.5 in November, and pointed to a marginal rate of reduction. Nonetheless, overall business activity has now fallen in four of the past five months.
December data pointed to divergent sector trends, with business activity rising further at service sector companies while a renewed contraction of output was seen at manufacturers. That said, the rate of service sector activity growth eased to a fractional pace, with the Caixin China General Services Business Activity Index posting just over the no-change 50.0 mark at 50.2 in December, down from 51.2 in the previous month. Furthermore, this was the second-lowest index reading since the series began in November 2005 (behind July 2014).
Relatively subdued client demand was reported across both monitored sectors in December. This was highlighted by only a marginal increase in new work at service providers that was one of the weakest seen in the series history. New business meanwhile fell at manufacturing companies for the sixth month running and at a moderate pace. As a result, new orders declined for the second successive month at the composite level.
Despite slower growth in business activity, services companies continued to add to their payroll numbers in December. The rate of job creation was modest overall, and was generally linked by panellists to ongoing company expansion plans. Lower production requirements at goods producers led employment across the manufacturing sector to fall again in December, however. Furthermore, recruitment at services companies did not offset further job shedding in the goods-producing sector, and led composite employment to fall for the seventh month in a row, albeit marginally.
Backlogs of work were little-changed across China’s service sector in December, thereby ending a 10-month sequence of reduction. In contrast, the level of work-in-hand rose for the eighth successive month across the manufacturing sector. Moreover, the rate of accumulation was the quickest since February. Consequently, composite outstanding business increased slightly for the third month in a row.
Softer client demand and greater competition for new business contributed to further falls in average tariffs set by services companies and manufacturers in December. While manufacturers registered a sharp rate of discounting, only a marginal reduction was seen in selling prices set by service providers. Input costs also declined markedly at manufacturers in December. Meanwhile, cost inflation persisted across the service sector, albeit at a modest rate that was much slower than the series average.
Service sector companies in China expressed a relatively low level of optimism towards the 12-month business outlook in December. Furthermore, the degree of positive sentiment remained only slightly stronger than the record low seen in October.