Economic Buzz: China overall business output expands amid fresh rise in factory production

China's service sector expanded again at the end of the second quarter. That said, rates of both business activity and new order growth eased since May. This was amidst another reduction in new export business.

Meanwhile, job shedding was recorded for the third time in the past four months, which contributed to a faster accumulation of backlogged work. Overall sentiment was positive regarding the 12-month outlook, but remained historically subdued.

On prices, a slower rise in average input costs coupled with competitive pressures led to another fall in output charges in June.

The headline Caixin China General Services Business Activity Index posted 50.6 in June, down from 51.1 in May.

This marked the thirtieth successive month in which the index has registered above the crucial 50.0 no-change mark to indicate an expansion of services activity in China. The pace of growth was the softest since last September, however.

Central to the softer rise in services activity was a moderation in the rate of new business growth. Overall sentiment in the service sector remained positive at the end of the second quarter.

Staffing levels were lowered in June, which survey respondents often linked to a slowdown in new order growth and concerns over costs. Turning to prices, average input costs remained on an upward trend in June.

The Composite Output Index posted above the 50.0 no-change threshold at 51.3 in June, up from 49.6 in May. This indicated that output returned to expansion after falling in the prior month.

Underlying data revealed that a renewed increase in manufacturing production had offset a softening of services activity growth. New business also returned to expansion, despite subdued exports.

That said, business optimism softened slightly and job shedding persisted in June. Lower workforce capacity contributed to the fastest accumulation of backlogged work in a year.

Finally, average input prices declined fractionally following two consecutive months of inflation. Cost savings were generally shared with clients amid efforts to stimulate sales. Furthermore, average selling prices were cut at the quickest rate in more than two years.

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