HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled the thirteenth successive monthly expansion of Chinese business activity in May. That said, the rate of activity growth weakened for the second month in a row, with the HSBC Composite Index posting at 51.2, down fractionally from 51.3 in April.
May data indicated that an expansion in service sector business activity was the main factor driving overall output growth, as manufacturing production contracted for the first time in five months. Furthermore, the rate of activity growth at service providers accelerated to the sharpest recorded in eight months. This was signalled by the HSBC China Services Business Activity Index posting at 53.5 in May, up from 52.9 in April.
Business activity growth at Chinese service providers was supported by a further increase in new work in May. Moreover, the latest increase in new business at service sector companies was the sharpest for three years, with panellists highlighting a general strengthening of client demand and the impact of new projects. In contrast, new business placed at manufacturers in China fell for the third successive month, albeit marginally. At the composite level, new orders increased at a moderate pace that was the strongest in three months.
In line with the trends for activity and new work, service sector employment expanded at a faster rate in May. Moreover, the latest increase in staff numbers at service providers was the fastest since January 2013. Manufacturing employment meanwhile declined for the nineteenth successive month, albeit at the slowest rate since February. Overall, faster payroll growth at service sector firms offset sustained job cuts at manufacturers, leading to the first increase in composite employment for three months.
Latest data signalled a fourth successive monthly fall in backlogs of work at service providers in May. That said, the rate of depletion was only slight. Chinese manufacturers meanwhile reported an increase in the level of work-in hand (but not yet completed), albeit at a fractional rate. Service sector companies in China saw a further increase in their average cost burdens in May. That said, the rate of inflation was modest and slower than the series average.
Meanwhile, average input costs continued to decline in China’s manufacturing sector, though at a weaker rate than in April. At the composite level, input costs fell again in May, albeit at the slowest rate in nine months. Average prices charged by service providers were little changed from the previous month in May. Manufacturers, on the other hand, discounted their selling prices for the tenth month in a row. Consequently, output prices fell slightly at the composite level.