Tokyo – The latest S&P Global Services Purchasing Managers’ Index (PMI) shows Japan’s service sector growth decelerating in September. The final PMI reading fell to 51.3, down from the August peak of 52.5 and below the flash estimate of 51.6. A reading above the 50‑point threshold still signals expansion, but the slowdown reflects weaker business activity and a slowdown in new orders.
Key indicators
According to Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, the data point to a “softer expansion” as the third quarter draws to a close. While new orders continued their 27‑month streak of growth, the pace of increase eased compared with August. Domestic demand remained a supportive factor for sales, yet export‑related orders fell again, marking the second‑sharpest decline since January 2021.
Employment in the sector rose for the 13th consecutive month, registering the fastest hiring pace since February. Companies also reported the strongest rise in work backlogs in seven months, indicating firms are expanding capacity and seeking to fill vacancies.
Cost pressures
Input‑cost inflation eased to a six‑month low, though it stayed elevated by historical standards. Firms cited higher costs for raw materials, oil, labour and food. Service‑provider charges rose again, but output‑price inflation softened from August levels.
Broader economic context
The Composite PMI, which blends manufacturing and services, slipped to 52.3 in September from 53.5 in August, its weakest level since May. Meanwhile, the Bank of Japan’s quarterly “tankan” survey released on Thursday showed manufacturers’ confidence hitting an eight‑year high for the July‑September period, while confidence among non‑manufacturers declined, painting a mixed picture of the overall economy.
Analysts note that the service‑sector slowdown comes amid lingering effects from recent earthquake disruptions, which have dampened demand in certain regions. Nevertheless, the continued rise in employment and the persistence of new‑order growth suggest underlying resilience.
Outlook
Looking ahead, S&P Global expects the services PMI to remain above the growth threshold but cautions that further moderation is possible if domestic demand weakens or external shocks persist. Policymakers will likely monitor the balance between employment gains and cost pressures as they assess the health of Japan’s service‑driven economy.
For businesses and investors, the data underscore the importance of managing input‑cost volatility while capitalising on the still‑positive employment trends. The mixed signals from the tankan survey also highlight divergent sentiment between manufacturers and service providers, a factor that could influence future policy decisions.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
