Japan Private Sector Activity Falters for Third Time in August

Kimberly Watson, Editor in Chief
September 09, 2012 /

Japanese service providers have reported lower business activity for the fourth consecutive month during August, as intakes of new work continued to fall amid weak client demand.

Companies reduced their employee numbers in response. Looking ahead, however, Japanese service providers
expressed a marked degree of optimism regarding the one-year business outlook. On the price front, output charges fell again in August, and input cost inflation eased to just a marginal rate.

Alex Hamilton, economist at Markit and author of the report said the data indicated “that growth of the
world’s third largest economy is waning.”

Hamilton added: “Private sector new business also fell over the month, leading companies to relocate labour to completing work outstanding. Meanwhile, the size of the private sector workforce contracted, albeit marginally, and both input costs and output charges declined.”

After adjusting for seasonal factors, the Business Activity Index posted below the neutral level of 50.0 in August, signalling a further reduction in Japanese services output. However, the pace of reduction was only marginal, and slower than in July. This was signalled by a rise in the headline index from 47.5 to 49.3.

Meanwhile, the Composite Output Index (covering manufacturing and services) remained below the neutral 50.0 threshold, signaling contraction, for the third month running in August. However, the rate of decline in private sector output was only modest. This was indicated by a rise in the index from 47.4 to 48.6.

August data pointed to a second successive monthly decline in new business received by service providers in Japan. However, the rate of contraction was only slight. Composite data also indicated a further decline in private sector new business.

Backlogs of work in the Japanese service sector decreased for the fifth successive month during August, although the pace of reduction was only modest. Companies generally commented on falling new business and corresponding spare capacity at their units.

August data pointed to a renewed decline in service sector staff numbers, with panellists largely attributing this to lower levels of new business. There were also reports of employee resignations and retirements. The rate of job shedding was only slight, however. Meanwhile, the size of the private sector workforce contracted marginally in August, according to composite PMI data.

Average input costs faced by Japanese service providers increased for a second month running during August, although the latest increase was just marginal. In contrast, a moderate fall in purchasing costs was signalled by the manufacturing PMI survey.

Output charges set by Japanese service sector firms decreased again during August. The rate of output price discounting was solid, but nonetheless weaker than the long-run trend. Increased competition for new business was reported as having restricted the ability of service providers to raise their service charges.

Japanese service providers were confident about the one-year outlook for business activity for the second month running in August. The degree of optimism was marked, and the join-highest in 38 months. Positive sentiment was primarily linked by companies to expectations that demand will improve in the next twelve months. Business expansion plans were also cited by survey respondents as having supported confidence.

“On a more optimistic note, a rise in service sector confidence to the joint-highest in 38 months indicates that sentiment has not been rattled by the slowdown in the wider economy,” Hamilton said.


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