China: Business activity growth accelerates at start of fourth quarter
The seasonally adjusted headline Caixin China General Services Business Activity Index posted 52.0 in October, up from 50.3 in September. This extended the period of expansion that commenced in January 2023. While modest, the rate of growth was the fastest in three months.
Improvements in underlying demand and market conditions underpinned growth in new business inflows in October. The rate of expansion rose for the first time in four months though remained modest overall. Growth in new work was supported by another solid increase in export business which panellists attributed to successive business development efforts and rising interests from foreign markets such as the US.
Capacity pressure was meanwhile observed in the service sector. Despite faster services activity growth, backlogs accumulated again and at a slightly quicker pace than in September. As a result of rising workloads, Chinese service providers raised their staffing levels for a second consecutive month, albeit only marginally.
Average input prices continued to increase for Chinese services firms in October amid reports of rising input material and energy costs. The rate of inflation fell below the series average, however, dropping to a three-month low. Meanwhile, selling prices stabilised after falling for two successive months. While some firms opted to pass on higher costs to clients, others lowered prices amid heightened competition.
Finally, sentiment in the Chinese service sector remained positive at the start of the final quarter of the year. Moreover, the level of confidence rose from September’s low to the highest since May. Anecdotal evidence suggested that firms were hopeful that a better economic climate and increased promotional efforts can help to support sales growth in the year ahead.
FYI: The new business index rose to 52.1 in October (51.0 in September) and the outstanding business index rose to 50.7 in October (50.4). The new export orders sub-index fell to 52.9 in October from 53.5 in September.
Analyzing Sentiment in Quarterly Earnings Calls — Q3 2024
With the peak in US interest rates for this current cycle now firmly in the rear-view mirror, financial markets are looking to see if the US economy can successfully carry out a soft landing. That wait-and-see attitude seems to be reflected in the relative stasis since Q2 2024 of our Net Positivity score, measuring how upbeat the language is that executives are using on corporate conference calls.
The Q3 overall Net Positivity score of 1.23% is slightly lower than last quarter (1.24%), but slightly above the trailing one-year average of 1.21%. Seven of the 11 sectors increased their score from the previous quarter, but a relatively large decrease for the Consumer Discretionary sector, which was the most positive last quarter, dragged down the overall index level.
Communication Services (1.62%) and Consumer Staples (1.48%) were the best two sectors for Net Positivity, both improving from the previous quarter and above their one-year trailing average. Within Communication Services, strong scores from heavyweight constituents Alphabet Inc. (NASDAQGS:GOOGL) with 2.44% and Meta Platforms, Inc. (NASDAQGS:META) with 2.40% led the sector.
Within Consumer Staples, the standout companies included Sysco Corporation (NYSE:SYY) with 2.86% and Keurig Dr Pepper Inc. (NASDAQGS:KDP) with 2.40%. Real Estate remained the worst performing sector for Net Positivity (1.06%) but higher than the one-year trailing average (0.95%). Realty Income Corporation (NYSE:O) had the lowest score in the sector (0.38%).
