TOKYO- Japan’s services sector activity grew for the first time in 21 months in October as consumer sentiment picked up after the coronavirus pandemic subsided, giving a broad-based boost to demand.
The government in September ended state of emergency curbs imposed to contain the health crisis, as new cases and deaths came down rapidly that month and the burden on the medical system eased.
“Japanese service sector firms reported that activity returned to expansion territory for the first time in nearly two years,” said Usamah Bhatti, economist at IHS Markit, which compiled the survey.
“Firms continued to build capacity in anticipation of a gradual recovery in demand, despite the rate of job creation easing to a three-month low.”
The final au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) rose to a seasonally adjusted 50.7 from the previous month’s 47.8, matching a flash reading.
That meant services sector activity stayed above the 50.0 threshold that separates contraction from expansion for the first time since January 2020, before the economy went through its deep COVID-19 slump.
The 20 months of decline was the longest such streak since a 27-month run through March 2010, during the global financial crisis.
Some economists hope a stronger recovery in service sector sentiment will offset a slowdown in output and exports, which are being hit by a persistent global chip and parts supply shortage.
The PMI survey showed the services sector saw the biggest jump in input prices since November 2019, while new and outstanding business remained in contraction despite the expansion in overall business activity.
The composite PMI, which is calculated using both manufacturing and services, expanded for the first time in six months, rising to 50.7 from September’s final of 47.9.
Meanwhile, a measure of US services industry activity surged to a record high in October likely as declining COVID-19 cases boosted demand, but businesses remained burdened by snarled supply chains and the resulting exorbitant prices.
The significantly improved public health picture appears to be lifting the labor market, with other data on Wednesday showing an acceleration in private payrolls growth last month.
The reports suggested the economy was regaining momentum early in the fourth quarter after being restrained by the Delta variant of the coronavirus and shortages last quarter.
“The recovery is continuing in the fourth quarter, but supply-chain disruptions and hiring difficulties will continue to constrain growth,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh, Pennsylvania. “Labor supply should pick up in the months ahead, but it will take months for supply chains to return to normal.”
The Institute for Supply Management said its non-manufacturing activity index vaulted to a reading of 66.7 last month. That was the highest since the series started in 1997 and followed a 61.9 reading in September. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of US economic activity.
Economists polled by Reuters had forecast that the index would edge up to 62.0. The summer wave of infections driven by the Delta variant has subsided, encouraging more consumption of services like air travel and dining out.
“Demand shows no signs of slowing,” said Anthony Nieves, chair of the ISM services business survey committee. “However, ongoing challenges, including supply chain disruptions and shortages of labor and materials, are constraining capacity and impacting overall business conditions.” Reuters
