Japan’s private-sector growth lost momentum in September, with business activity expanding at its weakest pace in four months, according to preliminary S&P Global PMI data released on Thursday.
Softer domestic demand weighed on new orders, although overall private-sector activity remained in expansion territory.
Japan Composite PMI Falls to 52.5
The S&P Global Flash Japan Composite PMI Output Index declined to 52.5 in September from 53.5 in August.
Despite the slowdown, the reading remained above the 50.0 threshold that separates expansion from contraction. It also marked the 18th consecutive month of growth in Japan’s private sector.
However, September recorded the weakest pace of expansion since May.
Manufacturing and Services Growth Ease
The slowdown was visible across both manufacturing and services.
Japan’s Flash Manufacturing PMI fell to 54.1 in September from 54.9 in August. Meanwhile, the Services PMI Business Activity Index slipped to 51.6 from 52.5.
Manufacturing remained the main driver of private-sector growth. However, factory output increased at its slowest pace in three months.
Domestic Demand Weighs on New Orders
Growth in new business also moderated during September as weaker domestic demand affected companies across the private sector.
Manufacturers continued to report solid sales growth, although the pace slowed to a four-month low.
Services companies also recorded weaker growth in new business compared with the previous month.
Export Demand Remains Resilient
External demand provided some support to the Japanese economy.
New export business increased at the same rate as in August, when export growth reached its strongest level in eight-and-a-half years.
However, the improvement came entirely from the manufacturing sector. Services companies reported another decline in overseas demand.
Inflation Pressures Remain Elevated
Inflationary pressures remained significant in September, despite signs of moderation.
Input-cost inflation eased to a four-month low. Companies continued to report higher energy and raw-material costs, partly linked to the conflict in the Middle East and weakness in the Japanese yen.
Higher labor and transportation expenses also contributed to rising business costs.
Meanwhile, selling-price inflation eased only slightly from the record level recorded in August.
Japan Employment Growth Accelerates
Employment across Japan’s private sector increased again in September.
The latest increase extended the current period of job creation to three years. The pace of employment growth was also the strongest in seven months.
Both manufacturers and services companies increased hiring during the month.
Businesses Remain Cautious on Growth Outlook
Despite continued expansion, S&P Global said Japanese businesses remained concerned about the economic outlook.
Persistently high prices and relatively weak domestic demand could limit private-sector growth in the coming months.
The flash PMI survey was based on responses collected between September 8 and September 21. Final manufacturing PMI data are scheduled to be released on October 1.
