Edge and Odds

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Edge and Odds

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CHINA SERVICES PMI UP 1.5 TO 52.0

Caixin China Composite PMI™ data (which covers both manufacturing and services) pointed to a broad stabilisation of Chinese business activity in October. This was highlighted by the Caixin Composite Output Index posting only fractionally below the neutral 50.0 value at 49.9, up from September’s 80-month low of 48.0.
October survey data signalled that a stronger increase in service sector business activity was offset by a further decline in manufacturing output.

That said, goods producers recorded the slowest rate of contraction for four months. Meanwhile, services activity rose at a quicker rate, one that was the most pronounced since July. This was shown by the Caixin China General Services PMI posting 52.0 in October, up from September’s 14-month low of 50.5. Nonetheless, the latest reading was indicative of only a modest rate of growth that was slower than the historical average.

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Service sector companies saw a further rise in total new business during October. In line with the trend for activity, the rate of new order growth picked up from September’s recent low and was solid overall. Panellists that reported greater volumes of new work generally linked this to improved underlying client demand. In contrast, new business placed at manufacturing companies continued to decline, though at a slower rate than in September. Overall new business rose for the first time in three months, albeit fractionally.

Service providers in China continued to add to their payroll numbers in October. The rate of job creation was modest overall, despite edging up to a three-month high. Moreover, employment growth at services companies was not sufficient to offset a further fall in manufacturing staff numbers. Consequently, employee headcounts at the composite level continued to decline in October, though at the slowest rate since July.

October data signalled a reduced amount of unfinished work across China’s service sector, but the rate of depletion was only slight. According to panellists, lower than expected sales had contributed to falling backlogs. In contrast, manufacturing work-in-hand increased for the sixth month running, resulting in a first rise at the composite level since March.

Service providers cut their selling prices for the second month in a row, albeit only fractionally. Manufacturing selling prices also decreased during October. Falling charges in the service sector were recorded in spite of a further increase in cost burdens, the sharpest in eight months. In contrast, a sharp fall in input costs at manufacturing firms meant that composite input prices continued to decline.

Business sentiment at services companies eased to the lowest in ten years of data collection. Relatively soft market conditions and an uncertain economic outlook had reportedly dampened optimism towards the outlook for activity over the coming year.

JAPAN SERVICES PMI UP 0.8 TO 52.2

Growth of the Japanese service sector improved at a faster rate at the start of the final quarter of 2015. Picking up from September’s low, growth of activity was robust overall, supported by further expansion in new orders. In contrast, employment levels declined, having increased slightly in the prior month.

Meanwhile, purchasing costs at Japanese services firms rose at a faster rate, albeit at a pace weaker than the average over the current three-year period of inflation. Concurrently, charges rose, following a marginal decline in September. Meanwhile, business sentiment eased for the second month running to the weakest since May.

The seasonally adjusted Business Activity Index posted at 52.2, up from 51.4 in September, indicating a quicker rate of expansion in the Japanese service sector. Moreover, the latest reading was the best since August and the second highest since September 2014. New business developments and a rise in sales were cited as the main factors behind the increase in activity.

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Meanwhile, output growth at Japanese manufacturers increased at the sharpest pace since February. The quicker increases in both manufacturing and service sector output was reflected in the Nikkei Composite Output Index which posted at 52.3 the best reading since August (52.9) and the second-highest since September 2014.

Contributing to the expansion in business activity was an increase in new orders at Japanese services firms. Growth in new work intakes was little-changed from September’s low, but was in line with the average seen over the year so far. Manufacturers also registered an expansion in new orders and at the fastest rate in a year.

Despite evidence of greater activity, service sector firms cut back on their staffing levels. Moreover, the rate of decline was the sharpest since December 2011. In contrast, employment increased at Japanese manufacturers to the greatest degree for 18 months.

A combination of greater demand and a reduction in staff numbers subsequently led to pressure on capacity at Japanese services firms, as volumes of unfinished work accumulated. Furthermore, the rate of increase was the quickest since July, with 12% of survey respondents recording greater backlogs. In contrast, manufacturers reported a decrease in backlogs of work for the second month running.

On the price front, reports of an unfavourable exchange rate driving up imported costs led to a rise in input prices. Subsequently, service firms increased their charges in order to compensate for greater cost burdens. In the goods-producing sector, input prices rose during the month, while manufacturers’ charges declined.

Expectations of new premises, new business developments and higher sales were all cited as factors behind positive forecasts for growth in the Japanese service sector. However, the degree of sentiment eased to a five-month low, with some panellists signalling concerns over the strength of underlying demand, particularly from China.