Japan Services Growth Remains Steady Despite Slower New Orders in October
Japan’s service sector maintained solid expansion in October, though new order growth slowed to its weakest pace in 16 months, according to the latest S&P Global Japan Services PMI report.
The headline Services Business Activity Index came in at 53.1, down slightly from 53.3 in September, marking the seventh straight month of growth. The Finance and Insurance sector led overall activity, followed by gains in Transport and Storage firms.
Slower New Business and Employment Growth
Despite overall resilience, new business growth softened sharply, recording its slowest rate since mid-2023. Foreign demand for Japanese services continued to decline, though the pace of contraction eased compared with previous months.
Employment growth also moderated, with staffing levels rising only marginally as firms focused on filling existing vacancies and implementing limited expansion plans. The slower pace of new orders, combined with modest hiring, reduced capacity pressures, as backlogs of work grew at their smallest rate in four months.
Inflationary Pressures Intensify
Input cost inflation accelerated in October, with businesses reporting higher expenses for labor, raw materials, food, and fuel. As a result, selling prices were raised at the fastest pace since June, reflecting companies’ efforts to offset rising operational costs.
Service providers remained cautiously optimistic, though business confidence eased from September’s eight-month high. Firms cited labor shortages, rising costs, and sluggish customer demand as factors tempering their outlook.
Composite PMI Shows Slight Output Improvement
The broader S&P Global Japan Composite PMI, which includes both services and manufacturing activity, rose to 51.5 in October from 51.3 in September. This indicates a modest but steady increase in private sector output.
While service sector growth cooled slightly, it was offset by a smaller decline in manufacturing output. However, new business across the composite index fell for the first time since June 2024, driven by weaker manufacturing orders and slower services sales growth.
Employment across both sectors rose only slightly, while cost pressures increased, with input and output price inflation reaching four-month highs.
