Latest survey data pointed to a general stabilisation in business conditions at Japanese service providers. Both output and new orders were unchanged from February, when only moderate increases were observed. Meanwhile, services firms cut back on their staff numbers for the first time since last November. On the price front, input price inflation slowed to a 13-month low, while charges rose only slightly. Forecasts towards the 12-month outlook at Japanese services firms were less optimistic in March, with business sentiment easing to the weakest since May last year.
The seasonally adjusted Business Activity Index posted at the crucial 50.0 no-change mark at the end of the first quarter of 2016 (February 51.2). This followed on from the weakest increase in activity since last July during February. Moreover, the latest reading contributed to the lowest quarterly average seen since Q1 2015.
Mirroring the trend for business activity, new orders at Japanese service firms stagnated in March. This followed an 11-month period of expansion. Surveyed companies that recorded a rise in new business mentioned success in gaining new clients.
Meanwhile, production at Japanese manufacturers declined in March for the first time in nearly a year. A contraction in manufacturing output was reflected in the Nikkei Composite Output Index, which dropped below the 50.0 no-change mark to 49.9 (from 51.0), thereby signalling an overall decline in the combined manufacturing and service sector. Moreover, the latest figure was the lowest since March last year.
For the first time since last November, service sector providers cut back on their staffing levels in March. A number of panellists commented on retirements leading to the fall in employment. Moreover, the rate of job shedding was sharper than the survey average. Meanwhile, goods producers hired workers at the weakest rate in the current six-month sequence of job creation.
Emanating from stable new orders, pressure on capacity was reduced and volumes of unfinished work were depleted for the second month running. Levels of work-in-hand at Japanese manufacturers decreased at the quickest rate in 22-months.
According to anecdotal evidence, lower fuel prices helped to reduce cost pressures at Japanese services companies as input prices increased at the weakest rate in over one year. Charges, meanwhile, rose at a slightly quicker pace. Meanwhile, input prices at goods producers declined at the fastest rate since August 2012. Manufacturers were subsequently able to reduce their charges to a greater degree.
Business sentiment towards the 12-month outlook in the service sector weakened to the lowest in ten months. A number of panellists blamed a weaker Chinese economy as the key factor leading to uncertainty towards the outlook. However, the degree of sentiment was still stronger than the long run series average, with some firms anticipating stronger demand before the implementation of the higher sales tax.