(Bloomberg) -- China's services sector expanded at a slower-than-expected pace in April, adding to concerns about the economy's recovery after data this week signaled a contraction in factory output.
The Caixin China services purchasing managers' index slid to 56.4 in April from 57.8 the previous month, Caixin and S&P Global said in a statement Friday, lower than economists' median forecast of 57. Any reading over 50 indicates an expansion from the prior month, while a number below that suggests contraction.
China's benchmark CSI 300 Index of stocks erased early gains and fell as much as 0.8% after the data. The lower-than-expected data together with recent economic indicators, “shows that the recovery is not that strong,” said Steven Leung, executive director of UOB Kay Hian.
The rebound of the world's second-largest economy has been lopsided, with demand for goods slowing as consumers increase spending on services such as travel and restaurants. Manufacturing activity contracted for the first time in months in April, separate Purchasing Managers' Index surveys showed this week.
Consumer spending got a boost toward the end of April and the beginning of this month as millions of Chinese traveled and flocked to tourist hotspots over the five-day Labor Day public holidays. Even so, official data showed growth in tourism spending from pre-pandemic levels was slower than the overall increase in the number of trips, suggesting consumers have become more frugal.
The Caixin survey focuses on smaller firms compared to the official services PMI. The latter index eased to 55.1 from a record 56.9 in March, indicating still-strong expansion.
Employment in the services sector continued to rise in April but the rate of job creation slipped from the previous month, according to the Caixin survey. Businesses are still highly confident that activity will expand further over the next 12 month, but the degree of optimism has fallen from a peak in January to a four-month low, the survey shows.
“Businesses continued to express confidence in a better market environment as the impact from Covid waned,” Wang Zhe, a senior economist at Caixin Insight Group, said in a statement released with the data.
Economists expect the pickup in consumption to drive the economy's recovery this year, with growth likely to reach 5.6% in 2023, according to the latest Bloomberg News survey. That's above Beijing's official target of about 5%.
--With assistance from Xiao Zibang and Shikhar Balwani.
(Updates with additional details throughout.)
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