Japan Service Sector Growth Slows in December

In December, Japan’s service sector experienced its slowest growth since May, a private survey revealed. The final Japan Services Purchasing Managers’ Index (PMI) from S&P Global dropped to 51.6, down from 53.2 in November. Though it was below the earlier estimate of 52.5, the sector remained in expansion territory, marking the ninth consecutive month above the critical 50.0 level. Despite a resurgence in new export activities, a softer demand overall contributed to the deceleration in growth.

While international interest in Japanese services showed signs of recovery for the first time since June, the rate of new orders saw a limited increase, according to the survey findings. Input costs surged notably in December, reaching levels not seen since May. This escalation was driven by elevated prices for raw materials, staff, fuel, and building expenses, leading to a considerable uptick in output charges. Annabel Fiddes, the economics associate director at S&P Global Market Intelligence, highlighted the persistent issue of input prices as a significant concern for businesses. She underscored the delicate balance companies must strike between passing on heightened costs to consumers to alleviate margin pressure while remaining competitive to sustain sales.

Despite the challenges posed by escalating input costs, the survey indicated a notable increase in staff numbers within Japan’s service sector. This rise represented the fastest pace of growth in over two-and-a-half years. The upsurge was attributed to heightened sales and the filling of longstanding vacancies. Looking ahead, business confidence for the upcoming year remained robust. Companies expressed optimism about the potential impact of upcoming product launches, store openings, and enhanced demand in key sectors like transportation and information technology on future sales performance.

The final S&P Global Japan Composite PMI, which encompasses both the service and manufacturing sectors, fell to 51.1 in December from 52.0 in November. This decline reflects the service sector’s weakest expansion rate in seven months, despite a stabilization in manufacturing output following a decline. The data paints a mixed picture of the Japanese economy, pointing to ongoing challenges but also underlying resilience. As businesses navigate through uncertainties and cost pressures, maintaining growth momentum remains a key priority for the sector as a whole.