Latest survey data pointed to a slowdown in the expansion of the Japanese service sector. Business activity growth weakened, alongside a further easing in the rate of expansion in new orders. In contrast, employment growth resumed, having declined slightly in the prior month.
On the price front, increased competition encouraged service sector firms to reduce selling prices. Input prices, on the other hand, continued to increase, although the rate of inflation was slight.
Meanwhile, business sentiment weakened slightly from August’s 23-month record, although remained solid overall.
The seasonally adjusted Business Activity Index posted at 51.4, down from 53.7 in August (the highest reading in 22 months), thereby indicating a slower expansion in the Japanese service sector. Despite a lower figure, the average business activity reading in the third quarter (52.1) was the highest since the final quarter of 2013 (53.1). (…)
Meanwhile, output growth at Japanese manufacturers slowed to the weakest pace in the current five-month sequence of expansion. The weaker increases in both the manufacturing and service sector was reflected in the Nikkei Composite Output Index which posted the lowest reading since April (51.2), down from 52.9 in
August (the highest reading in 19 months).
New business at Japanese services firms expanded for the sixth straight month in September. Although slowing, the rate of expansion was still in-line with the average in 2015. Manufacturers also registered an increase in new orders and at a rate of growth broadly unchanged from August’s seven month record.
Pressure on capacity was evident in the Japanese service sector as volumes of unfinished work accumulated further during the month. However, the rate of increase was only modest and weaker than the average over the current six-month sequence of accumulation. In contrast, manufacturers reported a decline in backlogs of work.
Alongside activity and new order growth, service sector companies hired additional staff in September, offsetting the fall observed in August. Although modest, the rate of expansion was the quickest since November 2014. There was also mention of the opening of new businesses helping to boost staff numbers. Meanwhile, staffing levels at manufacturers decreased for the first time since March.
According to anecdotal evidence, higher raw material and staffing costs led to a rise in input prices at Japanese service providers. However, the rate of inflation was only modest. Meanwhile, charges declined slightly as companies reported increased competition. Similarly, in the goods producing sector, input price inflation resumed during the month, while charges declined at the quickest rate since March 2013.