China's all-important services sector slowed down last month

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The great hope for China’s economic transition — the nation’s services sector — saw activity levels slow modestly last month, according to the latest Caixin-Markit China services purchasing managers (PMI) report.

The PMI fell to 51.8 in April, 0.4 points below the 52.2 level struck in March.

The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

While at 51.8 it’s activity levels are still improving, the index remains below its historic average.

Though the headline index fell, you wouldn’t know it from the internal details of the report — they were largely good.

New order growth hit a three-month high with some firms commenting on improved underlying client demand and new product launches, according to Markit.

Order backlogs also rose for the first time in 2016 with panelists indicating that improved inflows of new work contributed to renewed capacity pressures and higher unfinished workloads.

As a consequence, employment levels also rose, reversing the drop recorded in the previous month.

Like that seen in the separate manufacturing PMI gauge, price pressures also increased, signalling that inflationary pressures may be building.

The one weak spot came from the survey’s sentiment gauge which held steady after falling to a three-month low in March.

“Anecdotal evidence suggested that some companies expect improving market conditions, are planning operational expansions and are forecasting new projects to boost activity,” said Markit. “However, other businesses commented that relatively subdued market conditions could dampen growth.”

As opposed to the non-manufacturing PMI report released by China’s National Bureau of Statistics — a larger survey which takes in responses from both the public and private sector — the Caixin-Markit survey focuses on responses from smaller services firms from the private sector.

Despite differences in the construction of the surveys, both registered slower growth in April, indicating a continued moderation in momentum compared to levels seen in previous years.

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