Econintersect: The April HSBC PMI (Purchasing Managers Index) for the service sector in China plunged more than three points in April to a value of 51.1. In March 
the HSBC index reading was a much more robust 54.3. Readings above 50 correspond to an expanding economy. A stronger reading from the official government non-manufacturing PMI for April was much stronger at 54.5, down from 55.6 in March. The HSBC surveys cover mid-sized and small mostly privately owned businesses while the official PMI is collected from larger companies with significant government ownership.
The key points from the HSBC/Markit press release are:
- Composite data signals slower activity and new business growth in April
- Total employment falls for first time since last October
- Both input prices and output charges decline at the composite level
Here is the text of the press release from HSBC and Markit:
Summary
HSBC China Composite PMI™ data (which covers both manufacturing and services) signaled an expansion of output for the eighth consecutive month in April. However, the HSBC China Composite Output Index signaled only a marginal rate of growth, posting at 51.1. This was down from 53.5 in March, suggesting that the rate of expansion was the weakest since last October.
Output rose simultaneously across both the manufacturing and service sectors for the sixth successive month in April. That said, the rates of expansion were only marginal in both cases. The latter was indicated by the HSBC China Services Business Activity Index recording 51.1 in April. Down from 54.3 in March, the services survey headline index signaled the weakest expansion of service sector activity since August 2011.
Behind the weaker expansion of total output was a slower rate of new order growth in April. Both the manufacturing and service sector posted modest rates of expansion that were weaker than in March. Overall, new order growth at the composite level was the slowest in seven months.
Backlogs of work decreased at service providers, but rose at manufacturers in April. That said, the rates of change were marginal in both sectors. At the composite level, backlogs of work declined for the third month in a row, though only slightly.
Employment levels decreased across both the manufacturing and service sectors in April. Although the rates of job shedding were only marginal in both cases, it was nonetheless the first time service providers had cut their staff numbers since January 2009 and was the first reduction in manufacturing payroll numbers since last November. Consequently, employment at the composite level fell slightly in April.
There were divergent trends in average input costs across both the manufacturing and service sectors in April. Input costs at service providers increased, albeit modestly and at the weakest rate in ten months, while manufacturers reported the sharpest reduction in input prices since last September. At the composite level, input costs fell for the first time in seven months.
Output charges also displayed divergent trends in April. Service providers raised their output charges, albeit slightly. Meanwhile, manufacturers discounted their average tariffs for the second month in a row, and at the sharpest rate since last August. At the composite level, output charges were cut for the second consecutive month, with the rate of decrease strong overall.
Service providers meanwhile are optimistic towards the 12-month business outlook in April. However, the degree of positive sentiment towards future growth was the weakest in the seven-and-a-half year series history.
Quotes from various sources are listed below.
Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC (Markit):
“The cooling of service sector activity in April likely reflected the knock-on effect of slower manufacturing growth, the impact of property tightening measures and the spreading bird flu. Again, this started to bite employment growth. All these are likely to add some risk to China’s growth in 2Q, as there’s still a bumpy road towards sustaining growth recovery.”
Zhang Zhiwei, chief China economist at Nomura Securities in Hong Kong (Reuters):
“The weak HSBC service PMI figure provides further evidence of a slowdown not only in the factory sector but also in the service sector. This confirms our worries about insufficient growth momentum in the economy, which we expect to slow to 7.5 percent in the second quarter.”
HSBC’s China chief economist Qu Hongbin (Reuters):
“This [sharp drop in new orders] started to bite employment growth. All these are likely to add some risk to China’s growth in 2Q, as there’s still a bumpy road towards sustaining growth recovery.”
Jianguang Shen, chief China economist of Mizuho Securities Asia in Hong Kong (Reuters):
“The risk of slower growth is rising, the Chinese government will probably take actions after April data come out. I see an increasing possibility for China to cut interest rates, but not likely any time in the near future, as housing inflation is a constraint.”
Sources:
- HSBC China Services PMI™ (Press release, Markit, 06 May 2013)
- China services growth slows sharply, adds to recovery risk (Reuters, 06 May 2013)
