Services growth eases slightly but still robust in Feb

Growth in China’s services sector softened slightly in February but remained robust, prompting companies to hire more workers for the 18th month in a row, a private business survey showed.

The Caixin/Markit services purchasing managers’ index (PMI) fell to 54.2 in February from January’s 68-month high of 54.7, but was still above recent trends and well above the level of 50 that separates growth from contraction.

Despite the figures being seasonally adjusted, many economists think the Chinese new year effect inevitably clouds China’s readings early in the year. This year the holidays fell in February, which may have contributed to new business growing at the slowest pace in three months.

Many businesses start to scale back operations ahead of the actual holidays before shutting for the entire period or longer.

However, spending on consumer services was likely to be boosted by the festivities. The retail and catering sectors posted sales of 926 billion yuan ($146 billion) during the holidays.

The business outlook for the next 12 months picked up from a fourmonth low as new marketing strategies, upcoming projects and expectations that market conditions will continue to improve all supported optimism.

The findings largely echoed those in an official gauge of the non-manufacturing sector released last week, and they bode well for the central government’s longer-term goal of overhauling and modernizing its economic growth model to one driven more by consumption than heavy industry, investment and exports.

The government is counting particularly on growth in high valueadded areas.

The services sector already accounts for more than half of China’s economy, with rising wages giving its consumers more spending power at home and abroad.

Services companies continued to face strong input cost pressures in February, though they have been able to pass on some of the burden to customers, raising output charges for a sixth month.

This points to a further improvement in profitability, Zhong Zhengsheng, director of analysis at CEBM Group, said in a note accompanying the release.

Caixin’s composite PMI covering both the manufacturing and services sectors showed a similar pattern of solid but slightly so after growth, falling to 53.3 in February from the previous month’s multi-year high of 53.7

Economists polled by Reuters expect China’s economic growth will moderate to around 16.5 percent this year from 6.9 percent in 2017 as the property market cools and authorities press ahead with a clampdown wit on riskier financial activity that is driving up borrowing costs.