The HSBC China Services PMI™ reveals first expansion of output in four months, yet composite employment declines at the fastest rate since February 2009.

Key points

  • Services activity growth eases to marginal pace, while manufacturing output falls slightly
  • New business increases modestly at service providers
  • Composite employment declines at the fastest rate since February 2009

HSBC China Composite PMI™ data (which covers both manufacturing and services) signalled an expansion of Chinese business activity in May, following a three-month sequence of contraction. That said, the rate of growth was only fractional, as signalled by the HSBC Composite Output Index posting at 50.2 in May, up from 49.5 in April. According to latest data, a slower decline in manufacturing output and a further rise in services activity supported the first expansion of combined output since January. That said, the rate of services activity growth was the weakest in four months and one of the slowest in the survey history.

Reports from panellists suggested that muted client demand led firms to be more cautious towards hiring additional workers. As a result, employment at the composite level fell at the fastest rate since February 2009. Outstanding business declined across both the manufacturing and service sectors during May. However, the rates of reduction were similar to that recorded in the previous month and only marginal. Average input costs fell for the fifth month running at manufacturers, albeit at a modest pace that was the slowest in the current sequence. Meanwhile cost burdens at service providers rose modestly in May.

With a pronounced slowdown in housing demand and housing prices, this may be as good as it gets for a while.

Mike “Mish” Shedlock