China'S Service Industry PMI Rose To 41.4 In May And Employment Continued To Decline

Due to the relief of health events and the gradual relaxation of relevant epidemic prevention measures, the marginal improvement of business activities in the service industry in may still showed a contraction trend.

The Caixin China general service industry operating activity index (PMI) of China's general service industry published on June 6 recorded 41.4, up 5.2 percentage points from April, the second lowest since March 2020, indicating that the production and operation activities of service enterprises are still affected by health events, but the impact degree has been eased.

Previously released, Caixin's China manufacturing PMI rose 2.1 percentage points to 48.1 in May; PMI of the two major industries rebounded at the same time, driving Caixin China's comprehensive PMI to rise by 5.0 percentage points to 42.2, showing a contraction trend for three consecutive months.

From the perspective of supply and demand, the supply and demand of services will continue to shrink. In May, both the index of business activity of the service industry and the index of new orders rose from the low point in April, but they were still lower than the rongkuo line, which were the lowest since March 2020. The enterprises surveyed reported that the decrease in business activities was related to the prevention and control measures such as temporary shutdown and travel restriction due to the rise of domestic health events; At the same time, the health events inhibited the customer demand and reduced the number of customers. The external demand of service industry has been shrinking for five consecutive months, which is mainly affected by the prevention and control measures of health events, especially travel restrictions.

Contrary to the improvement in the marginal supply and demand of services, the employment situation continues to deteriorate. In May, the employment index of the service industry dropped in the contraction range to the lowest since March 2021, reflecting that the impact of health events is gradually transmitted to the employment market, and enterprises have low willingness to increase employment. Health event prevention and control measures and the reduction of employment affected the business backlog of enterprises. The backlog of business in the service industry further increased in May, reaching the highest level since March 2020.

The cost of service industry continued to rise, driving the sales price from falling to rising. In May, the input price index of the service industry continued to be in the expansion range, but the expansion rate dropped slightly to the lowest since September 2021, and the ex factory price index returned to above the boom and bust line. According to the enterprise, the rise in the cost of labor, raw materials, food, energy, especially transportation costs, has led to the rise of operating costs. Therefore, enterprises have responded to the cost pressure by adjusting the level of charges.

In May, the service industry business expectation index rose to the highest in nearly three months, but it was still lower than the long-term average. Enterprises are optimistic about the future, and generally believe that there will be a strong recovery after the health events and the business will tend to be normal; However, some enterprises are worried about the possible recurrence of domestic and overseas health incidents, which will have an impact on the business.

Wang Zhe, a senior economist at Caixin think tank, said that in May 2022, local health events continued in many places, and the outlook of manufacturing and service industries improved marginally, but they were still in the contraction range. Manufacturing industry is better than service industry, and demand is slightly stronger than supply. The negative impact of health events on market supply and demand has been transmitted to the employment end, and the problems of supply chain obstruction and logistics time extension have not been completely improved. Enterprise cost side pressure is still large. The negative impact of this round of health events on the economy may exceed 2020.

At the policy level, he believes that ensuring employment and logistics is usually the top priority. Breaking through the industry chain and supply chain blocking points and promoting the resumption of work and production will help stabilize the market entities and provide employment guarantee. In addition, the aid and relief policy should not be limited to the supply side, and subsidies for people with income decline due to health events should also be put on the agenda.