The latest set of Caixin China Composite PMI™ data (which covers both manufacturing and services) pointed to a further rise in Chinese business activity during August, with the rate of expansion little changed from that seen in July. This was shown by the Composite Output Index falling only fractionally from July’s 22-month high of 51.9 to 51.8 in August.
A further increase in total business activity was supported by moderate expansions of activity and output across the services and manufacturing sectors in August. The Caixin China General Services Business Activity Index rose from 51.7 to 52.1 in August. Although this showed that the rate of services activity growth picked up slightly from July, it remained moderate overall and slower than the series average. Meanwhile, manufacturers raised output for the second successive month, though the rate of expansion softened since July.
Services companies partly linked higher business activity to new projects. As was the case for activity, however, the rate of new order growth remained subdued, and the pace of expansion edged down slightly to a three-month low. Goods producers also saw new business increase during August, though the rate of growth weakened to a marginal pace. As a result, composite new work increased at a slightly softer pace than in July, with growth remaining modest overall.
After a marginal reduction in July, service sector staff numbers stabilised during August. Some service providers mentioned hiring additional employees to help with new projects, while others indicated that the non-replacement of voluntary leavers had cut workforce numbers. Meanwhile, manufacturing payrolls declined at a pace that, though marked, was the slowest seen in 2016 to date. At the composite level, employment fell for the fifteenth successive month, albeit at a moderate pace.
August data pointed to a third successive monthly fall in the level of work-in-hand (but not yet completed) at services companies, while backlogs continued to rise at manufacturers. The rate of depletion across the service sector remained similar to those seen in the prior two months and only marginal. Meanwhile, the pace at which outstanding work increased at goods producers eased to a moderate pace. Overall, composite outstanding workloads rose only slightly in August.
Input prices rose across both monitored sectors during August, though the rates of inflation eased from the previous month in both cases. Service providers saw only a marginal rate of cost inflation that was the slowest since January 2015. Panellists indicated that lower costs for particular items such as diesel had reduced price pressures. At the same time, the rate at which input costs increased at manufacturers slowed to a moderate pace. Consequently, composite input prices rose modestly in the latest survey period.
Prices charged for both manufactured goods and services rose only slightly during August. This contrasted with a solid increase in charges set by manufacturers in July, while it was the weakest rate of charge inflation seen at services companies for five months. A number of monitored firms mentioned that selling prices rose in line with increased input costs.
Services companies continued to express optimism towards the 12-month business outlook in August. Furthermore, the degree of positive sentiment was the strongest seen in six months, albeit below the series historical average. Expectations of improving market conditions and new business developments were mentioned as key drivers of business confidence in the latest survey period.