Japan services PMI falls slightly below 50-point mark, adding cloudy economic outlook

Japan’s services sector depressed slightly during the month of August, adding gloominess to the country’s economic outlook.

The Nikkei Japan Services Purchasing Managers' Index (PMI) dropped to 49.6 in August from 50.4 in July. A reading above 50 indicates economic expansion, while one below 50 points toward a contraction. However, the latest reading was lower than the long-run series average of 48.0.

Meanwhile, new orders rose marginally in August. The increase in new orders in the Japanese service sector was not strong enough to encourage firms to take on additional workers, as employment declined further in August.

Despite a fall in staff numbers at Japanese services companies, volumes of unfinished business were depleted for the second month running. Reports of poor demand meant space capacity was evident in the sector. However, the rate of decline eased from July’s 46-month record to only a modest pace. Similarly, the manufacturing sector saw backlogs of work decline at the weakest rate in six months, Markit reported.

"Latest PMI survey data also signalled stronger business expectations over the coming 12 months, with  the degree of sentiment picking up from July’s 49-month low to the strongest since April," said Amy Brownbill, Economist, IHS Markit.