China’s Service Sector Slows Substantially in June, Hitting Jobs

(Bloomberg) -- A gauge of China's services industry slowed sharply in June following virus outbreaks in some parts of the country and weaker new orders, with reduced confidence hitting the job market.

The Caixin services purchasing managers' index fell to 50.3 in June, the lowest since April last year and well below the 54.9 level forecast by economists. That pushed the employment index into contraction, according to a statement from IHS Markit Economics, which compiles the data. Any number above 50 indicates expansion from the previous month, while below 50 indicates contraction.

The survey shows a deeper downturn in services than the official non-manufacturing gauge released last week. The data for manufacturing has held more steady, underpinned by strong industrial and export demand.

The recent resurgence of Covid-19 in the Pearl River Delta had an impact on the services sector in the month, Wang Zhe, a senior economist at Caixin Insight Group, said in a statement. Business activity and new orders rose at the slowest pace in 14 months, according to the survey.

“It's a pretty big negative surprise,” said Michelle Lam, Greater China economist at Societe Generale SA in Hong Kong. “The recovery in consumption may have been slower than we imagined” and smaller businesses have lagged larger companies in rebounding from the pandemic, creating a drag on wage growth and consumption power, she said.

Wang said the resurgence of Covid-19, coupled with weakening supply and demand, hurt the labor market, with the index for employment falling into contractionary territory in June for the first time in four months.

The composite index, which combines both manufacturing and services, dropped to 50.6, pulled down by slower expansions in both areas. Overall employment in the economy fell slightly, with job cuts by services firms outweighing an uptick in manufacturing jobs.

With assistance from Bloomberg