The Caixin Service Sector Purchasing Managers Index fell to 50.6 in September. That’s the lowest level since December 2015 and 2.1 points below the August survey. In this index anything above 50 indicates that the economy or the sector is expanding so September’s survey still points to expansion in China’s economy.
But the service PMI follows on a lower than expected report in the Caixin Manufacturing Sector PMI in the month of September. That’s down from 51.6 in August and below the consensus forecast of 51.5. It was the weakest report in the manufacturing sector since June. Output and new orders rose by the least in three months while growth in exports also slowed.
Both the Caixin Service and Manufacturing Sector surveys came in below the reports from the official government PMI survey. The difference in the two surveys is that the private Caixin survey includes more small to mid-sized companies in the private sector while the government survey is weighted toward the country’s big State-Owned Enterprises.
One interpretation is that the government has stimulated the state-owned sector ahead of this fall’s politically sensitive party meetings that will pick a new leadership line up under President Xi Jinping for the next five years.
I’d also note that economic data is showing significant increases in inflationary pressures with output and input costs hitting the highest level seen this year. That pick up in inflation will be a drag on profitability in the manufacturing sector going forward.