Latest Caixin China Composite PMI™ data (which covers both manufacturing and services) signalled a renewed increase in overall Chinese business activity in March, following a slight reduction in February. The composite index posted above the neutral 50.0 mark at 51.3, up from 49.4, and the highest reading in 11 months.
March survey data pointed to a modest rebound in overall Chinese business activity, driven by slightly stronger growth of services activity and a renewed expansion of manufacturing output.
The stronger performance of the service sector was highlighted by the Caixin China General Services Business Activity Index posting at 52.2, up from 51.2. That said, the reading continued to point to a modest rate of expansion that was slower than the series average. Meanwhile, manufacturing output returned to growth after an 11-month sequence of stagnant or reduced production, though the rate of growth was only marginal.
In line with the trend for activity, new orders rose modestly at service providers in March, with the rate of growth little-changed from the previous month. Some respondents commented that improving underlying market conditions had helped to secure new work. Meanwhile, goods producers saw the first rise in new business since June 2015. As was the case with output, however, the rate of expansion was only slight. At the composite level, new business rose at a rate that, though modest, was the strongest recorded in ten months.
Despite the slightly stronger expansion of business activity, services companies took a cautious approach to staff numbers. This was highlighted in March by the first fall in service sector employment since August 2013, albeit only slight. Companies that reported job shedding generally commented on the non-replacement of voluntary leavers and, in some cases, job cuts due to relatively muted growth in new work. Manufacturers also cut their payroll numbers in March, with the rate of reduction having eased only slightly since February’s post-recession record. Consequently, composite employment fell at the sharpest rate since January 2009.
Fewer-than-expected sales at services companies underpinned a further decline in outstanding business across the sector. That said, the rate of backlog depletion was only slight. In contrast, an upturn in new business at manufacturing companies contributed to a slight increase in the level of work-in-hand at goods producers. Overall, composite outstanding business increased for the first time in 2016 so far, albeit at a marginal pace.
Service providers saw a further rise in average input costs during March. However, the rate of inflation weakened since February and was modest overall. Cost burdens meanwhile increased for the first time in 20 months at manufacturing firms. The pace of input price inflation was also modest across the goods producing sector.
Although input costs increased, service sector firms reduced their selling prices in March amid reports of greater competition for new work. That said, the rate of discounting was only slight. On the other hand, prices charged by manufacturing companies increased at the end of the first quarter, with firms suggesting that tariffs rose in line with higher cost burdens. At the composite level, prices charged rose slightly for the first time since July 2014.
Service sector confidence towards the 12-month business outlook slipped slightly in March to its lowest level in 2016 so far. Optimism was generally linked to forecasts of an improving economic climate and planned company expansions.
