China's services sector continued to expand at a modest pace as the seasonally adjusted Caixin China General Services Business Activity Index held steady at 52.9 in May from the April reading, data from Caixin and IHS Markit showed.
At the composite level, the Caixin China Composite PMI, which covers manufacturing and services, was unchanged at 52.3 in May from the prior month, indicating a "steady and moderate" growth rate. A reading above 50 points to expansion.
Manufacturers and services companies noted higher output in May, however, the pace of expansion in both sectors remained muted compared to the earlier months of 2018. New business placed with Chinese services companies rose moderately in May, at a pace that was softer than in April, underpinned by firmer demand and new product offerings. Meanwhile, manufacturers saw a slightly faster rise in new orders.
Services firms hired more staff in May at the quickest rate in four months, offsetting the increased staff reduction among goods producers. This kept composite employment stable for the second straight month. The services hiring spree also helped ease work backlogs in that sector and at the composite level.
"The employment index continued to rise, while the new business index slipped slightly, indicating a positive change on the supply side and marginally weaker demand across the service sector," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.
Cost inflation picked up moderately among China's services providers after slowing for three consecutive months, "suggesting that the upward pressure on costs has not completely eased," Zhong said. Manufacturing firms faced the strongest rise in cost burdens since February. This meant input prices at the composite level climbed at a slightly stronger pace in May than in April.
Higher input costs prompted firms to raise output prices again in May, at the fastest rate so far in 2018 at the composite level. This was mainly driven by prices for factory goods growing at their quickest pace since December 2017, while those for services increased at the slowest rate in eight months due to competitive pressures.
