China'S Service Industry PMI Rebounded Sharply In June

With the overall improvement of the situation of health events, the relevant prevention and control measures were gradually relaxed, the production and operation of the service industry began to recover, and the industry prosperity rose to the expansion range.

The Caixin China general service industry business activity index (PMI) of June, released on July 5, recorded 54.5, a sharp rise of 13.1 percentage points compared with may, ending the contraction for three consecutive months and rising to the highest since August 2021. This means that the service industry is beginning to bottom out and rebound.

Previously, Caixin's China manufacturing PMI rose 3.6 percentage points to 51.7 in June; Driven by the simultaneous recovery of PMI in the two major industries, Caixin China's comprehensive PMI rose by 13.1 percentage points to 55.3, a new high since January 2021, reflecting the recovery of production and operation activities of Chinese enterprises.

Caixin China PMI trend is consistent with the National Bureau of statistics. In June, the PMI of manufacturing industry recorded 50.2, up 0.6 percentage points, PMI of service industry increased by 7.2 percentage points to 54.3, and comprehensive PMI rose by 5.7 percentage points to 54.1.

From the sub data point of view, the supply and demand of service industry have recovered. In June, the index of new business order and service supply improved. The enterprises interviewed said that with the relaxation of epidemic prevention measures, business activities were restored, while the number of customers and consumption increased, supporting the recovery of sales. However, health events continued to suppress the overall demand, and the number of new orders did not improve. On the external demand side, due to health events and travel restrictions, the index of new export orders of the service industry fell into the contraction range for the sixth consecutive month.

Although the supply and demand of the service industry has improved, the employment situation has not improved significantly. In order to cut costs, enterprises reduced employment. At the same time, health incidents also led to the turnover of some employees. As a result, the employment index of the service industry in June was lower than the boom and bust line for the sixth consecutive month, but rose slightly from the previous two months. The index of service industry backlog in June was still higher than the critical value, but slightly lower than that in May.

Service industry cost growth slowed down, and sales prices continued to rise slightly. In June, the service industry input price index fell to the lowest in two years in the expansion range due to the decrease of raw material prices and the reduction of labor costs. For the second consecutive month, the ex factory price index of the service industry was higher than the boom and bust line, but the increase was slightly slower than that in May. According to the survey, although some enterprises have increased their charging level due to the rising input cost, the market situation is relatively low and the pricing ability of enterprises is limited.

Although the business activities of the service industry rebounded strongly in June, the business expectation index was only flat with that in May. Some enterprises are still worried that the future health events will continue to affect the operation and customer demand.

Wang Zhe, a senior economist at Caixin think tank, said that the health events in June had been basically controlled, and the relevant control measures had also begun to relax, and the production and operation order of enterprises had gradually returned to normal. The service industry, which had been more affected by the health events, had a stronger recovery momentum.. The resumption of work and production as well as the recovery of transportation and logistics are reflected in the supply side. It is still time to recover the demand. The feedback from the employment market is sluggish. The cost pressure of manufacturing enterprises is still high, and the profitability is still facing challenges. The recovery in post health event period is still the main line of current economic operation, but the foundation is not firm, and the weak employment market leads to the deterioration of residents' income and expectation, which is the direct reason for the limited market demand recovery intensity. Therefore, it is suggested that more attention should be paid to the employees, flexible employees and low-income groups affected by health events.