2014.09.0300:31:00UTC+00Japan Services PMI Falls Into Contraction

The services sector in Japan contracted in August, albeit barely, the latest survey from Markit Economics revealed on Wednesday with a purchasing managers' index score of 49.9.

That was down from 50.4 in July, and it slipped below the boom-or-bust score of 50 that separates expansion from contraction.

Among the individual components of the survey, new business growth and payroll numbers both remained in expansionary territory for the third straight month.

"Latest PMI data indicated a fall in business activity for Japanese services, although at only a slight pace. New business growth, on the other hand, was sustained for a third month in a row. Furthermore, job creation remained in growth territory amid reports of planned company expansions," said Markit economist Amy Brownbill.

Markit's composite PMI climbed to 50.8 from 50.2 in the previous month.

Japanese manufacturing business conditions improved during August, with both output and new orders rising at the fastest pace since before the sales tax increase was implemented in April.

Higher manufacturing production was largely reflective of increased new orders, and the rate of expansion was sharp and the highest since March. A further marked increase in new export orders was also recorded.

Average input costs at Japanese services providers continued to increase in August, as has been the case since November 2012. Moreover, the rate of input price inflation accelerated for the second successive month and was the strongest since April.

Job creation was recorded for the thirteenth month running at Japanese manufacturers, with the pace broadly in-line with the previous two months. Unfinished business fell for Japan services companies in August, albeit at a marginal rate. Meanwhile, backlogs of work for manufacturers rose for the first time in five months in August.

Finally, Japanese service providers were optimistic with regards to the 12-month business outlook in August.

"It would seem that the performance of the Japanese service sector will return to positive growth in the near future as the negative effects of the sales tax increase dissipate," Brownbill said.