Japan November services growth slows but business confidence picks up: PMI

TOKYO, (Reuters) - Japan’s service sector activity grew at a slower pace in November due to a slowdown in outstanding business, but new orders remained relatively strong and business sentiment improved, suggesting the economy will continue to expand in coming months.

A pedestrian holding an umbrella crosses a street at a shopping district in Tokyo, Japan, March 7, 2016. REUTERS/Yuya Shino

The Markit/Nikkei survey released on Tuesday showed its Japan Services Purchasing Managers Index (PMI) fell to 51.2 on a seasonally adjusted from 53.4 in October, which was the highest in 26 months.

The index remained above the 50 threshold that separates expansion from contraction for the 14th consecutive month.

The index for outstanding business fell to 50.6 from 51.5 in the previous month to the lowest level since February.

But the pace of new business was largely steady, dipping only marginally to 53.7 from 53.8 in October.

Business expectations rose to the highest level since May, though job creation slowed markedly with some firms noting that retiring staff had not been replaced.

Japanese services firms also continued to face rising input cost pressures, particularly as manpower shortages increased labour costs, but they were able to pass some of the increases to customers to relieve pressure on profit margins. Prices charged rose at the fastest rate in 28 months.

“Growth of activity in the Japanese service sector appeared to lose momentum slightly in November, following October’s 26-month high,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“Nonetheless, the expansionary trend which has been apparent since October 2016 was maintained. Businesses remained optimistic that activity would rise in the future.”

The composite PMI, which includes both manufacturing and services, fell to 52.2 from 53.4 in October.

Japan’s economy grew faster than expected in the third quarter due to strong exports, posting the longest period of uninterrupted growth in more than a decade. Economists expect growth to continue in the current quarter as consumer spending recovers from a recent bout of weakness.

Reporting by Stanley White; Editing by Kim Coghill