Sluggish Growth of Japan Services Sector in May, New Orders Declined

Japan’s services sector activity rose at a sluggish pace in May than the previous month given the expansion of new orders at the slowest pace since September 2016, based on the private survey on Tuesday. This implies that the economy has lost its momentum in the second quarter.

However, the business confidence increased to the highest for four months in April as the companies launch new products to give way for the expected increases in the future demand.

The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) declined on a seasonally adjusted basis to 51.0 in May from 52.5 in April.

Moreover, there is a rising concern on the lesser demand conditions as new sales rising but at a subdued rate in 20 months, according to an economist at IHS Markit, Joe Hayes, who gathers the survey.

To sustain the business activity, firms started to clear the “backlogs of work”. High business activities dropped for the first time in the first five months of the year.

The composite PMI, which includes both manufacturing and services, decreased to 51.7 from 53.1 in April.

Japanese manufacturing activity rose in May at the slowest rate in seven months due to cooled down new orders based on the revised survey on Friday. This implies lesser domestic demand of the country. Hence, the economy weakened in the first quarter that ends the growth for eight consecutive quarters, which was the longest steady growth since the 1980s bubble economy.

Since the end of the first quarter, the negative outcome on factory data induced uncertainty on the rate of recovery by the economy.