Japan's private sector experienced a modest contraction in October, primarily driven by a decline in the services sector, as revealed in a significant report released by S&P Global on Thursday. The flash composite output purchasing managers index (PMI), which merges both manufacturing and services data, fell to 49.4 in October from a previous 52.0 in September.
This reading, which lands below the 50 threshold, signifies a contraction in economic activity. Both the manufacturing and services PMIs faced declines this October. The manufacturing PMI eased down to 49.5 from 49.7, while the services PMI underwent a considerable drop to 49.3, a significant shift from its earlier measurement of 53.1.
In the manufacturing sector specifically, new orders saw a downturn, and both employment and output figures also reflected a slip. Furthermore, the outlook for manufacturing operations has turned rather muted, with S&P Global commenting that "output in coming months is likely to remain subdued, with firms indicating that the level of outstanding business experienced the most notable depletion since March." Confidence in the future of Japan's manufacturing sector, looking ahead to the next 12 months, dipped to its lowest point since April 2022, according to the report.
The adverse economic conditions, both domestic and international in nature, have negatively influenced the services sector, resulting in a reduction in new orders. Hiring practices, although slowed in October, sustained enough momentum to fulfill demand levels. Interestingly, input costs have moderated within the private sector; however, output charges observed an increase.
The Japan composite PMI report was meticulously compiled by S&P Global, utilizing data from surveys distributed to 400 manufacturers and an equal number of service-sector providers between October 10 and October 22..