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[Caixin.com] China's service industry rebounded in July, employment improved, and corporate optimism rebounded from a low level.

The Caixin China General Services Business Activity Index (Service PMI) for July, released on August 5, recorded 52.1, up 0.9 percentage points from June, indicating that the expansion of the service industry has accelerated.

The Caixin China Manufacturing PMI for July, which was released earlier, fell by 2.0 percentage points to 49.8, falling into the contraction range for the first time since November 2023. The improvement in the service industry was not enough to offset the decline in the manufacturing industry. The Caixin China Composite PMI fell by 1.6 percentage points to 51.2 in July, the lowest in nine months.

Data recently released by the National Bureau of Statistics showed that the manufacturing PMI fell 0.1 percentage point to 49.4 in July, remaining below the boom-bust line for three consecutive months, and the service industry business activity index fell slightly by 0.2 percentage points to 50.0; the business climate of the two major industries declined at the same time, dragging the composite PMI down by 0.3 percentage points to 50.2, the lowest since January 2023.

Judging from the sub-item data of Caixin China Services PMI, the expansion speed of supply and demand in the service industry accelerated in July, and the two major indexes rebounded in the expansion range. However, the support of external demand for overall demand weakened, and the new export order index fell significantly, only slightly above the boom-bust line, the lowest since September 2023.

The employment situation in the service industry improved in July, with the employment index rising to the expansion range and reaching its highest level since September 2023. The companies interviewed said that the increase in staff was mainly to cope with new business. With the increase in employment and the improvement in work efficiency, the ability of companies to digest orders on hand has increased, and the backlog of workload index has fallen again to the contraction range after a brief rise in June.

The cost of the service industry continued to increase. In addition to the increase in raw materials, labor and freight, companies also increased employee allowances and invested extra expenses in hot weather. Despite the continued cost pressure, corporate sales prices did not continue to rise. The service industry sales price index fell back to the critical point in July. Some companies cut prices for promotions, offsetting the impact of price increases.

Business optimism rebounded from a low level. The service industry business expectation index rebounded slightly in the expansion range in July, but it was still the second lowest since April 2020. Service industry companies generally hope that future market conditions will improve and business development will bring growth to business activities, while some companies are worried that the economic environment may weaken in the coming year, which will dampen demand.

Wang Zhe, senior economist at Caixin Think Tank, said that the service industry was in a good mood in July, while the manufacturing industry was relatively under pressure. The price level was still relatively low, especially the sales price was at a low level, and the profit space of enterprises was further squeezed. The market optimism was slightly restored, but it was still at a low level. The lack of effective domestic demand and the weak market expectations are still the most prominent problems at present. Stabilizing growth, promoting employment, and protecting people's livelihood, increasing policy stimulus, promoting the implementation of previous policies, and stimulating market vitality and endogenous motivation with greater efforts should be the focus of recent policy work.