Japan Services PMI Hits 53.3 in September as Domestic Demand Offsets Factory Slump

Japan’s service sector grew for an 11th straight month in September. A key private survey confirmed the expansion on Friday. The sustained growth highlights a resilient domestic economy. It also sharply contrasts with a deepening contraction in factory activity.

The final Services Purchasing Managers’ Index (PMI) from S&P Global rose to 53.3. This was up from August’s 53.1. A reading above 50.0 indicates growth. The figure also surpassed the preliminary flash estimate.

Japan Services PMI Driven by Robust Domestic Demand

The survey data reveals a clear driver for the growth. Strong domestic demand fueled the increase in new business orders. This marks an 11-month period of continuous service sector expansion.

New export business, however, declined for a third consecutive month. This points to weaker international demand. The domestic market is clearly carrying the economy forward. According to Reuters, this domestic strength is a key buffer for Japan.

Firms responded to the increased sales by expanding employment. Business confidence also hit an eight-month high. Companies cited plans for expansion and new product releases as reasons for optimism.

Contrasting Fortunes for Japan’s Economy

The broader economic picture is more mixed. The Composite PMI, which includes both manufacturing and services, fell to 51.3. This is the slowest growth rate since May.

The solid service sector performance was offset by a sharper decline in manufacturing. This creates a two-speed economy. The nation’s factories are struggling while its services thrive.

Annabel Fiddes of S&P Global Market Intelligence commented on the trend. She noted that growth is being largely driven by domestic demand. Both manufacturers and service providers reported falling new export orders.

Input cost inflation eased slightly in September. However, companies continue to report high costs for labor and materials. Firms are responding by passing these costs on to customers through higher output charges.

The latest PMI data confirms a clear divergence in Japan’s economic landscape. The resilient Japan Services PMI is providing a crucial counterweight to global manufacturing headwinds and sustaining overall growth momentum.

Info at your fingertips

What does a PMI reading above 50 mean?

A PMI reading above 50.0 indicates expansion in a sector. A reading below 50 signals contraction. The further from 50, the faster the rate of change.

Why is Japan’s service sector growing?

Growth is primarily driven by strong domestic client demand. This has led to a constant increase in new orders, supporting business activity and employment.

How does this affect Japan’s overall economy?

The service sector expansion is helping to offset a decline in manufacturing. This prevents a broader economic slowdown, as shown by the Composite PMI still being in growth territory.

What is the business outlook for Japanese services?

Business confidence reached an eight-month high in September. Firms are optimistic due to planned expansions and new product releases.

Are prices continuing to rise?

Yes. While input cost inflation eased, companies are still facing high costs. They are passing these on to customers, leading to solid rises in output charges.

Trusted Sources: S&P Global, Reuters