China service sector picks up in August, but new order growth eases: Caixin PMI

September 4, 2016 9:52 PM EDT

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BEIJING, Sept 5 (Reuters) - Growth in China's services sector picked up in August as new orders expanded modestly and employment stabilized, and business expectations rose to a six-month high, a private survey showed on Monday.

More signs of stability in China's economy support the growing consensus that China's central bank will hold off on further monetary easing such as interest rate cuts through at least the end of the year.

Stronger activity in the services sector, along with a stagnating manufacturing industry, also paint a picture of an economy that is slowly rebalancing.

However, analysts say gains in services are to some degree due to a housing recovery that is boosting real estate and construction services but may not be sustainable.

The Caixin/Markit services purchasing managers' index (PMI) rose to 52.1 in August on a seasonally adjusted basis, from 51.7 in July.

However, the rate of expansion was in line with recent months and remained well below the historical average. Caixin/Markit described the growth in activity as "relatively underwhelming".

New business increased, albeit at the slowest pace since May, and the prices firms were able to charge increased at the slowest rate in five months, indicating demand remains weak.

Caixin's composite PMI covering both the manufacturing and services sectors continued to show healthy expansion, with a reading of 51.8, slightly slower than July.

But analysts say China needs to step up structural reforms and fiscal stimulus to avoid a slowdown in coming months.

"Overall, the economy continued to expand in August at a pace similar to the growth rate for July, but conditions in manufacturing and service sectors diverged again," said Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group.

"Downward pressure on China's economy remains and supportive policies must continue."

China's official services survey showed robust growth continued in August but at a slightly slower pace from July.

But August manufacturing surveys were mixed, with Caixin/Markit's showing activity stagnated in August while an official factory reading saw the strongest growth in nearly two years.

The surveys by Markit, which is a registered trade mark of IHS Markit Limited, focus more on small and medium-sized firms.

A greater number of sometimes lower-skilled service jobs may help keep unemployment at bay as many industrial companies cut workers, but it could be having an impact on productivity growth.

The National Bureau of Statistics said on Thursday that China's labour productivity increased 6.6 percent in 2015, which was the slowest rate since 1999.

(Reporting by Elias Glenn; Editing by Kim Coghill)

((Elias.Glenn@thomsonreuters.com; +86 138 1600 5903; Reuters Messaging: elias.glenn@thomsonreuters.com))



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