China’s PMI confirms severe Asian weakness (Part 3)

Continued from Part 2

China’s July PMI was more than a disappointment—it was a confirmation of weakness

The Services PMI was also weak, though at least it showed expansion. But the 53.1 value caused mixed feelings among investors. The reason was China’s government had mentioned that stimulus would focus on consumers, and an expanding services sector in part implies that consumers aren’t as pinched as expected.

China’s PMI confirms severe Asian weakness (Part 3)

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Services activity steady

The business activity index remained well below the historical average, though at the same level as in June. Surveyed firms mentioned that new projects were driving production growth, which implies that demand itself isn’t the driver.

On the other hand, increased demand drove new orders higher. The increase was the highest since March. The outstanding business was slightly depleted, but the rate of decrease was fairly low.

Employment growth decelerated, though this sub-index has bounced around significantly in previous months, so we’ll take the value above 50 as positive. Several companies mentioned the need to hire additional staff to increase capacity, and most new hires were graduates. This may imply that additional capacity is needed in entry-level jobs to handle additional client demand.

Inflation in the services area

Continue to Part 4

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