Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled a stronger expansion in Chinese business activity at the start of the third quarter. Furthermore, the Composite Output Index rose from 50.3 in June to 51.9 in July, to signal the fastest rate of growth since September 2014.
The renewed upswing in overall growth momentum was partly driven by the first increase in manufacturing output for four months, while services activity continued to expand in July. That said, the rate of services activity growth slowed since June and was moderate overall. This was shown by the Caixin China General Services Business Activity Index falling from an 11-month high of 52.7 in June to 51.7 in July.
Increased manufacturing production was generally linked to new product launches and improved marketing strategies. Notably, July marked the first increase in new work placed at goods producers since March. Meanwhile, services activity growth was widely linked by panellists to new client wins. However, in line with the trend for activity, latest data pointed to a slowdown in the rate of new order growth at services companies. Nonetheless, the renewed upturn at manufacturers led to the fastest rise in composite new orders since February 2015.
Staff numbers declined across both monitored sectors in July. It was the first time that services employment had fallen for four months, though the rate of reduction was only marginal. Meanwhile, manufacturing payrolls fell markedly, despite the rate of job shedding easing to its weakest for six months. Companies across both monitored sectors mentioned lowering workforce numbers through the implementation of cost-cutting initiatives. Overall, employment fell modestly at the composite level.
The amount of unfinished work rose at manufacturing companies during July, but declined for the second month running at service providers. The rate of backlog accumulation was solid at goods producers, which firms generally linked to lower staffing levels and greater intakes of new work. Meanwhile, services companies commented on increased efforts to clear backlogs, though the rate of depletion was only slight. As a result, unfinished workloads at the composite level rose at a modest pace.
Average input prices rose only slightly at services companies, while manufacturers recorded a solid increase in cost burdens. Furthermore, it was the weakest increase in costs faced by services providers for a year-and-a-half. While manufacturers commented that higher raw material costs for items such as steel had raised input prices, services firms mentioned that inflationary pressures stemmed from higher fuel prices. Subsequently, composite input costs rose modestly in July, after a marginal increase in June.
July survey data indicated that prices charged by both manufacturers and services providers increased further. The rate at which selling prices increased for services was only slight, while manufacturers noted a solid rate of inflation. A number of companies across both sectors mentioned passing on higher input costs to clients in the form of higher selling prices. Overall, the composite rate of charge inflation quickened since June to a modest pace.
Services companies maintained a positive stance towards future business activity in July, with the degree of optimism edging up to a three-month high. That said, confidence remained weaker than the series long-run average. Service providers that anticipate growth of activity generally cited forecasts of improving economic conditions and an expanding market size.