Activity levels across Japan’s services sector improved sharply in January, bucking weakness in other economic indicators.
The Nikkei-Markit services purchasing managers index (PMI) rose to 52.4 in January, taking the index to the highest level seen since August 2015.
Like all PMI indices, a reading of 50 is deemed neutral, implying no change in activity levels from a month earlier. A reading above 50 indicates that activity levels are expanding while a figure below 50 indicates that activity levels are contracting.
In an encouraging sign for the months ahead, the forward-looking new orders subindex expanded for the tenth month in succession, accelerating to a fresh five-month high during the month.
Markit, pointing to anecdotal evidence, suggested that the launch of new products helped to boost new work intakes.
Fitting recent improvement in the labour market, the surveys employment subindex continued to expand. Firms reported that staff shortages lead to the hiring of extra workforce numbers.
Despite the increase in hiring, order backlogs continued to build, suggesting that employment growth may grow further in the months ahead.
While core consumer price inflation continues to flat line, input prices increased at the fastest pace in six months while output prices, while slower than December, expanded for a fourth consecutive month.
Despite the strong January result, the business outlook for the year ahead softened slightly.
“Where optimism was recorded, firms mentioned the launching of new products and greater demand generated from preparations in hosting the 2020 Olympic Games as factors behind positive activity projections,” said Markit.
“In contrast, some firms anticipate a fall in international demand.”
Combined with the separate Nikkei-Markit manufacturing PMI survey released earlier this week – something that printed at 52.3 – the Japanese composite PMI jumped to 52.6, indicating the fastest improvement in activity levels since August last year.