Japan’s Service Sector Growth Slows in September

TOKYO (Reuters) – Japan’s service sector activity expanded for the third straight month in September, but the pace slowed slightly and confidence dipped in a sign of broader economic strains amid weakness in manufacturing, according to a private survey released on Thursday.

The final au Jibun Bank Service purchasing managers’ index (PMI) declined to 53.1 in September from 53.7 in August, as reported by index publisher S&P Global Intelligence. This value was below the flash reading of 53.9 but above the 50.0 threshold separating expansion from contraction, with the average of the three months to September indicating sustained growth.

The services industry has been a bright spot for Japan, the world’s fourth-largest economy, anchoring growth and offsetting some drag from a struggling manufacturing sector. For September, service companies’ new business growth remained in expansion territory for the third consecutive month, supported by solid demand.

Business confidence also remained relatively upbeat, although it sank to a 20-month low, primarily due to the weak manufacturing sector’s impact on overall business growth.

Usamah Bhatti, economist at S&P Global Market Intelligence, noted, “How the (service) sector responds in the coming months, given downside risks including a stagnating economy, will be key to the performance of the wider private sector.”

Japan’s economy expanded at an annualized rate of 2.9% in the second quarter, bolstered by steady wage hikes supporting consumer spending. Capital expenditure continues to grow, but soft demand in China and slowing growth in the U.S. suggest a solid recovery for the export-reliant country could be some way off.

Export sales grew for two consecutive months but the pace slowed from August, with key markets including mainland China reporting weak demand.

While the rate of input inflation eased to a six-month low, it remained above the survey’s long-run average due to a weak yen raising pressure on wages, food, and imported raw material prices. Service companies continued to pass increased costs associated with wages and raw materials onto customers.

The composite PMI, which combines manufacturing and service activities, dipped to 52.0 in September from 52.9 in the previous month.