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Japan’s services sector shrinks for first-time in five months in August

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Economy 7 hours ago (Sep 04, 2022 08: 41PM ET)

Japan's services sector shrinks for first time in five months in August - PMI Reuters. FILE PHOTO: People cross a street in Tokyo March 18, 2015. . REUTERS/Yuya Shino

TOKYO (Reuters) – Japan’s services sector activity shrank for the very first time in five months in August as a resurgence of COVID-19 infections hurt demand, a small business survey showed.

The contraction demonstrates a recovery of the world’s third-largest economy remains fragile at best and is worrying at the same time once the global growth outlook is turning increasingly pessimistic.

The ultimate au Jibun Bank Japan Services purchasing managers’ index (PMI) dropped to a seasonally adjusted 49.5, marking the initial contraction since March.

The figure was slightly much better than a 49.2 flash reading but worse when compared to a slight expansion in activity of 50.3 in July. The 50-mark separates contraction from expansion.

“A renewed drop in services activity accompanied an additional drop in manufacturing production, with the latter falling at the quickest pace since September 2021,” said Annabel Fiddes, economics associate director at S&P Global (NYSE:) Market Intelligence, which compiles the survey.

“However, providers noted a weaker drop in output than those seen in the beginning of 2022, when there is also a spike in infections, as pandemic-related restrictions have already been eased notably since that time.”

Average cost burdens faced by services firms expanded at a marked pace in August because of hikes in energy, fuel and raw material costs, while firms continued to improve their fees modestly.

The composite PMI, that is estimated through the use of both manufacturing and services, shrank for the very first time since February, dropping to 49.4 from July’s 50.2 final.

“It’s likely that Japan’s private sector will stay under great pressure in the months ahead,” added Fiddes.

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