Services PMI on recovery path

Renewed optimism, improved hiring lift key gauge to three-month high

Recovery in China's services sector gathered speed in March as companies ramped up hiring and business activities resumed at a fast pace, after COVID-19 came under better control in the country, a private sector survey said on Tuesday.

The Caixin/Markit services Purchasing Managers' Index, an index that gauges China's services sector activity, rose to 54.3 in March, up from 51.5 in February. The reading, which was the highest since December, also reversed three consecutive months of declines and was well above the 50-mark that separates growth from contraction on a monthly basis.

Caixin's composite PMI rose to 53.1 in March, from 51.7 the previous month. The readings are more or less in line with the National Bureau of Statistics' readings released last week. According to the NBS, China's PMI stood at 55.3 in March, up 3.7 percentage points on a monthly basis.

The Caixin survey said that most of the surveyed enterprises felt that market activities are warming up in the country, with a steady growth in the number of new projects and clients. Though COVID-19 has come under better control in China, cases elsewhere in the world continued to affect the subindex for new orders in exports, though the contraction was at a lower pace.

The survey said that the subindex for employment turned positive as businesses continued to hire more workers, particularly in the services sector. Employment in the services sector bounced back at a much faster pace comparing with manufacturing. The employment index for the services sector rose by 3 percentage points to cross the expansion-contraction line. However, the increase in the number of workers in the services sector is still not adequate for meeting the new order demand, the survey said.

Price index for the services sector continued to remain at a high level, as cost of raw materials, energy, and labor kept rising, pushing the services sector input price index into the expansion range for nine consecutive months. Companies raised their prices for the eighth month in a row and by the largest amount so far this year last month.

Wang Zhe, senior economist at Caixin Insight Group, said employment pressures in the manufacturing sector are mainly due to the stagnant recovery of small and medium-sized businesses.

He points out that though the services sector recovery has accelerated, the level of contact services is still far from the pre-COVID-19 level. "I am confident about the continued recovery in services if the containment of the pandemic remains effective," he said.

He added that as price indexes of manufacturing and services have been rising for several months, inflation pressures are slowly rising.