Business activity at Japanese services firms declined at the sharpest rate since April 2014 at the end of the third quarter, emanating in part from adverse weather conditions. Moreover, services companies cut back on staffing numbers for the fourth month running, albeit at only a slight rate. On the price front, inflationary pressures remained
historically muted, while charges declined.The headline seasonally adjusted Business Activity Index posted 48.2 in September, down from 49.6 in August, signalling a sharper decline in output at Japanese services companies. Moreover, the latest reading was the lowest since April 2014 and contributed to the weakest quarterly average (49.4) in one-and-a-half years. A number of panellists
blamed recent typhoons for the decline in activity.
New orders at Japanese services firms were broadly unchanged in September. Moreover, the vast majority of the survey panel (85%) recorded no change in new business compared to August.
Meanwhile, production at Japanese manufacturers increased for the second consecutive month, albeit at only a marginal pace. However, the slight expansion in manufacturing production did not outweigh the fall in service sector activity, with the overall Nikkei Composite Output Index posting at 48.9, down from 49.8 in August, signalling the sharpest deterioration in overall private sector activity since April.
As a result of a decline in business activity, service providers remained cautious towards taking on additional workers, with employment staying in negative territory for the fourth month running. Data suggested that due to a fall in production and subdued demand conditions, firms cut back on their payroll numbers. However, the rate of decline was
the weakest in the current period of job shedding.Meanwhile, manufacturers took on additional workers at a slightly quicker pace. Resulting from a lack of demand, less pressure was placed on capacity and service providers were able to clear their levels of unfinished business. However, the rate of depletion was only marginal and slower than the long-run series average. Backlogs of work were also depleted at manufacturers.
Input prices at Japanese services providers increased at a slightly quicker rate, although inflation remained muted overall. Meanwhile, charges fell as part of efforts to try to boost sales.
Manufacturers, on the other hand, benefitted from lower cost burdens which resulted from reduced raw material prices. This enabled goods producers to lower their charges for the tenth consecutive month.
Finally, forecasts for service sector output over the coming year remained optimistic in September, with the degree of sentiment the same as August’s four month high. Expectations of greater output stemmed from preparations in hosting the Tokyo 2020 Olympic Games, new company expansions, improved advertising and a hoped for recovery in the economy after the Kumamoto earthquake.
