(Yicai Global) Sept. 3 -- A widely watched private survey showed a contraction in China’s services sector last month for the first time since May last year due to a resurgence of the coronavirus.

The Caixin purchasing managers’ index for services was 46.7 in August, down from 54.9 in July, data released by financial media group Caixin showed today. A mark below 50 indicates contraction.

The decline was in line with data published earlier this week by the National Bureau of Statistics. The official services sector PMI fell to 45.2 in August from 52.5 a month earlier.

The production and new orders indexes dropped into contraction territory for the first time in 16 months, with supply shrinking more than demand.

Service sector costs rose again due to increasing labor costs and freight rates amid the pandemic. The service input price index was still in expansion territory, but the pace of growth slowed to the second slowest since 2020.

The service sales price index rose sharply in July, but fell into contraction territory in August, indicating that weak demand caused by outbreaks of Covid-19 limited bargaining room.

The survey showed that market players remained optimistic about the coming year, but the service business index is expected to fall from July.

Services were more affected than manufacturing in August, according to Wang Zhe, a senior economist at Caixin’s think tank. Supply fell, with both demand and exports facing pressure. The jobs market contracted slightly, leading to more inflationary pressures.

The Caixin purchasing managers’ index for manufacturing, released on Sept. 1, showed a contraction in China’s manufacturing activity in August for the first time in 15 months. The index dropped to 49.2 amid severe flooding and the Covid-19 outbreaks, from 50.2 in July.

The double shrinkage dragged down the Caixin comprehensive PMI, which dropped to 47.2 last month from 53.1 in the prior month, marking the first contraction since May 2020 and indicating a decline in China’s production and business activities.

The official data was lower than market expectations, weighing on the economy, said Wang. There is need to make overall plans to improve pandemic prevention and control measures, maintain the stability of the job market, and ensure supply and price stability, he added.

Editor: Peter Thomas