BEIJING, (Reuters) - Growth in China's services sector cooled to a three-month low in May as new business and hiring slowed, a private survey showed on Friday, echoing signs of fading momentum elsewhere in the economy.
The Caixin/Markit services purchasing managers' index (PMI) for May dropped to 51.2 from 51.8 in April. Readings above 50 indicate an expansion on a monthly basis, while readings below signal contraction.
New business rose only modestly in May and at a slower pace than both April and the series' historical average.
In response, services firms hired fewer workers. The employment sub-component fell to 50.6 from April's 50.9, Business expectations, meanwhile, fell to a five-month low, but remained most respondents remained optimistic.
Beijing has been counting on a strong services sector to pick up the slack as it shifts the economy away from a dependence on heavy industry and manufacturing exports.
A sustained slowdown in the sector would present a challenge to the government's growth targets, especially as it steps up efforts to shut down excess capacity in the industrial sector that could throw millions of people out of work.
"The government needs to continue to push forward stabilizing measures to help the economy recover," Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in a note before the survey was released.
"It should also relax the control and regulation of the services sector to enable it to realize its growth potential and facilitate the transformation of the economy."
Taken together, growth in both China's manufacturing and services sectors also slowed in May, but still expanded at a modest pace. The composite PMI fell to a three-month low of 50.5 from 50.8 in April.
The composite employment figure remain unchanged at 48.3 in May, marking the 12th straight month of job losses.
China's official services survey earlier this week also showed activity continued to expand but at a slower pace, with the headline reading dipping to 53.1 from 53.5 in April. Its employment gauge fell in May and has been in contraction for at least 12 months.
China's official factory survey and Caixin's private survey for May gave somewhat mixed signals on the health of manufacturing, but both suggested conditions remain weak.
The official survey showed activity expanded for the third month in a row in May, albeit only marginally, while the Caixin manufacturing PMI declined from the previous month and was in negative territory for the 15th month in a row.