China’s robust services activity drives up employment, Caixin PMI shows

According to a private sector survey, China’s services activity in May grew at its fastest pace in 10 months, indicating a sustained recovery in the second quarter. The Caixin/S&P Global services purchasing managers’ index (PMI) increased to 54.0 from 52.5 in April, marking the 17th consecutive month of expansion and the highest growth rate since July 2023. This, combined with the near two-year high in the Caixin manufacturing PMI, suggests a robust expansion in business activity last month. However, further indicators such as exports, bank lending, and retail sales are yet to be released, providing more insights into the growth momentum. The Caixin/S&P’s composite PMI, which tracks both the services and manufacturing sectors, rose to 54.1 in May, the highest level in a year.
Services activity growth was supported by an increase in new business inflows. In fact, new business grew at the fastest rate since May 2023, including new export business.

To manage the increased workload, companies hired additional staff last month, resulting in staffing levels reaching their highest point since September of the previous year.

However, there were also intensified price pressures, as firms raised their charges due to rising cost burdens.

Business confidence levels decreased to a seven-month low, reflecting concerns about the global economic environment and rising prices.

While China’s economy had a strong start in the first quarter, leading the IMF and Moody’s to raise their annual growth forecasts, the prolonged property downturn has hindered a significant economic recovery.

According to Nomura analysts on Monday, overall growth momentum has remained weak, particularly in domestic demand, as developer contract sales continue to experience a significant decline.
However, considering the strong performance in exports, the Japanese investment bank has increased its forecast for China’s GDP growth in 2024 from 4.3% to 4.5%.