China’s Service Sector Jumps To 5-Month High, Rebound In Manufacturing To Boost Services Sector

China’s service sector activity accelerated to a five-month high in August, posting a reading of 52.8 on the purchasing managers’ index, or PMI, released by HSBC on Wednesday, up from 51.3 in July, and driven by new business growth and improved optimism about market conditions.

The HSBC-Markit composite output index for China, covering both manufacturing and services sectors, also expanded in August, for the first time in three months, to register a reading of 51.8, up from 49.5 in July.

HSBC data released on Sunday showed China Manufacturing PMI rose to 50.1 in August from 47.7 in July. A reading above 50 shows expansion while a reading below 50 denotes contraction.

However, employment fell slightly in factories even as new orders increased for the first time in four months. The number of jobs dipped at service providers too, the HSBC statement noted.

“Employment decreased as service providers saw their profit margins squeezed despite a moderate increase of output prices in August; the first rise in four months,” Hongbin Qu, chief China economist at HSBC, said in a statement. “A filter through impact of VAT reform, combined with a rebound in manufacturing output, is expected to support service industry growth in the coming months.”

Service providers expect an increase in business activity over the next year, and the degree of positive sentiment improved for the second month in a row, the Markit-HSBC survey showed. The optimism was linked to expectations of upbeat market conditions and strengthening client demand.

Official PMI data for the non-manufacturing sector, released by China’s National Bureau of Statistics on Tuesday, showed the index dropped marginally to 53.9 in August from July's 54.1.