China Services Activity Drops As Covid Lockdowns Curb Spending

A worker stands in front of a machine on a yarn production line at a factory in China. (Photo: Qilai Shen/Bloomberg)

(Bloomberg) -- China's services activity contracted in September for the first time in four months as Covid lockdowns in major cities such as Chengdu dampened consumer spending.

The Caixin services purchasing managers' index fell to 49.3 last month from 55 in August, S&P Global said in a statement Saturday, far lower than the 54.4 median estimate in a Bloomberg survey of economists. A reading below 50 signals a contraction in activity.

The data is further evidence of the toll China's Covid Zero strategy is taking on consumer spending and the economy. Shops, restaurants and cinemas were shut and residents confined to their homes when Chengdu and other big cities including Dalian and Lhasa were locked down last month to contain outbreaks.

There's no sign the situation will improve, with virus cases climbing to a one-month high on Thursday as holidaymakers traveled around the country during the week-long National Day break. Several cities have been sealed off due to flareups, and consumers have cut back sharply on spending, some indicators show.

The Caixin services index was in line with last week's official PMI reading for the sector, showing a contraction in activity for the first time since May. The official survey tracks larger companies, while the Caixin survey focuses more on smaller ones.

Economists have been steadily downgrading forecasts for China's economic growth for this year, with the consensus estimate now at 3.3%, well below the government's target of around 5.5%.

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