China's services sector expands in September, but costs rise and employment declines, according to Caixin PMI

BEIJING, (Reuters) – A private survey revealed on Monday that China's services sector was seeing its fastest growing demand in three months in September, as confidence deteriorated when businesses started to remove jobs after more than two years of expansion. pressure on profit margins.

The PMI of Caixin / Markit's Purchasing Managers rose from 51.5 in August to 53.1 in September. It stays above the level of 50 that separates contraction growth.

This acceleration of growth is a welcome signal for a key element of the world's second-largest economy, as it faces headwinds increasingly linked to fiery trade with the United States.

The September 30 official non-manufacturing indicator released last month also indicated continued expansion, which analysts said was largely driven by a jump in construction, signaling the government's fiscal easing could gain ground.

Monday's survey showed that the recovery was mainly due to the rise in new orders, with the sub-index rising at its fastest pace in three months, reading 52.4 versus 51.7 August.

China relies on services, including high-value-added financial and technology services, to reduce the traditional dependence of the economy on heavy industry and investment. Decision makers have also accelerated project approvals recently to support the growth of infrastructure investments.

The strength of the services sector would alleviate some of the pain already felt by the Chinese manufacturing sector by the impact of US tariffs. Factory activity stagnated in September after 15 months of expansion, with export orders falling the fastest for more than two years, according to a separate Caixin survey conducted there is a little more than a week.

Government statistics show that the services sector, accounting for just over half of the Chinese economy in the first half of 2018, grew by 7.6% over this period compared to the previous year, surpassing by far overall GDP growth of 6.8%.

Caixin's PMI for composites and composite manufacturing, also released on Monday, increased only slightly from 52.0 in August to 52.1 in September.

ABRUPTION OF LOSSES OF EMPLOYMENT

While rising activity in services could ease Chinese policymakers facing a long trade war with the United States, a sharp contraction in employment in the sector could signal nascent stress.

"We must be wary of the total employment contracted in September," said Zhengsheng Zhong, director of macroeconomic analysis of the CEBM group, in a note accompanying the publication of the data.

The employment sub-index dropped to 49 in September, recording its first contraction since July 2016 and its lowest level since March this year, leading to a slight decline in business expectations for the next 12 months.

The Chinese planner said that a trade dispute with the United States had created uncertainty in his job market, while Finance Minister Liu Kun also told Reuters that "we are in the middle of the day. he was very concerned about potential job losses.

Beyond trade shocks, China's deleveraging campaign as part of Beijing's commitment to reduce the financial risks of years of reckless debt accumulation has also undermined the ability of some governments and corporations to finance new projects and repay interest on the debt.

"The deterioration in employment will test the determination of policymakers to pursue reforms," ​​Zhong added.

Service companies may have experienced a contraction in earnings in September, as prices fell for the first time in 13 months as input price inflation reached its highest level since January.

Businesses reported higher fuel, raw material and salary costs during the month, the survey found.