Economic Buzz: Japan service sector growth remains solid in August

Companies across Japan's service sector saw a further solid increase in business activity in August, according to latest PMI data. The sustained rise in output was underpinned by a similarly strong upturn in overall new business. However, companies signalled a slight reduction in staffing levels for the first time in nearly two years amid stronger cost pressures.

At 53.1 in August, the headline Japan Services Business Activity Index slipped from July's five-month high of 53.6 but remained comfortably above the neutral 50.0 level to signal an expansion of output for the fifth straight month.

The sustained and strong rise in overall services activity was widely linked to higher amounts of new business, which also expanded solidly in August. Notably, total new orders increased at the steepest pace since February. This was despite a further decline in foreign demand for Japanese services, which contracted at the quickest pace in over three years.

Although activity levels and new orders continued to rise, firms took a cautious approach to staffing levels in August. Average input costs continued to rise sharply in August, with the rate of inflation picking up from July's 17-month low.

The S&P Global Japan Composite PMI Output Index increased from 51.6 in July to 52.0 in August to point to a stronger rise in total private sector output in Japan. Thought modest, the rate of expansion was the quickest seen since February, and extended the current period of growth to five months.

The upturn was driven by a solid rise in services activity, as factory output declined fractionally. Total new business also rose at the quickest pace in six months, albeit marginally overall. However, a broad-based drop in external demand led to a solid reduction in new export orders.

Composite employment, meanwhile, continued to increase, though only slightly. Average input costs rose sharply in August. That said, the rate of inflation was the second-slowest seen over the past 18 months. Prices charged inflation meanwhile eased to an 11- month low.

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