The Caixin China services purchasing managers’ index fell to 50.7, the lowest level in seven months, according to a statement from Caixin and S&P Global on Tuesday. The median forecast of economists surveyed by Bloomberg was 51.8. Any reading above 50 suggests expansion.
The disappointing reading will further stoke fears that the economy risks a rapid slowdown starting in the second quarter after a solid start to the year. With the official PMIs showing factory activity already took a hit from massive US tariff hikes in April, the question now is whether policymakers will be able to boost consumption fast enough to make up for an expected loss of demand for exports.
“Market improvements were limited amid the China-US trade row,” Wang Zhe, senior economist at Caixin Insight Group, wrote in a statement. “Service providers expressed concerns over the effects of US tariffs.”
A sub-index measuring expectations for future activity fell to the second-lowest level since data began in 2005. It was only weaker in February 2020, when the Covid outbreak erupted, according to the statement.
Apart from the hit to sentiment, tariffs have also led to the slowest rise in new business orders since December 2022. And in a sign that demand for labor is slipping, services firms reduced their staff size for a second straight month in April due to concerns over costs, according to an employment subindex.
Analysts polled by Bloomberg forecast growth in gross domestic product will decelerate to 4.2% this year, significantly below the official target of around 5%, which Finance Minister Lan Fo’an reaffirmed recently.
The state of the job market will go a long way to determining the strength of consumer spending. Goldman Sachs Group Inc. estimates 16 million people — or more than 2% of the labor force — may be exposed to US-bound exports. The official non-manufacturing PMI, which measures activity in construction and services, came in at 50.4 in April, slightly below the consensus forecast of 50.6. A sub-gauge for services has hovered around the 50-point line that separates contraction from expansion since the start of the year.
The private and official surveys cover different sample sizes, locations and business types, with the Caixin report focusing on small and medium-sized firms in the non-state sector.