Japan's private sector output posts softest rate of growth since May

Japan's private sector growth slowed in September, with services partially offsetting a contracting manufacturing sector, S&P Global reported Wednesday.

The S&P Global flash Japan composite purchasing managers index fell to 51.1 in September, the softest rate of expansion since May, and down from 52.0 in August.

A reading above the 50.0 neutral mark indicates an overall increase in business activity from the previous month, while a reading below signals a contraction.

Specifically, the flash services PMI fell to 53.0 in September from 53.1 in August.

The flash manufacturing PMI unexpectedly declined to 48.4 from 49.7, below the reading of 50.2 that was expected according to the FXStreet-cited consensus forecast.

Meanwhile, the flash manufacturing output index fell to 47.3 from 49.8.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, said: "Japan's private sector lost momentum in September, with overall output expanding at the softest pace in four months. The surveys suggest that the service sector remains a key growth engine, and saw a further solid increase in activity, which helped to offset a deepening downturn across the manufacturing sector."

Output in the manufacturing sector saw the sharpest decline reported since March as firms struggled with subdued sales and cautious inventory policies.

Furthermore, many companies across the private sector were reluctant to increase their staffing levels in September, with employment growth at its slowest pace in two years.

"Cost pressures remain a key concern, and while the rate of input cost inflation has eased since the start of the year, the respective index remains consistent with a sharp rate of inflation overall," Fiddes explained. "This translated into a further solid increase in selling prices as firms looked to ease pressure on their margins."

S&P Global compiles the PMI figures each month using survey responses from a panel of approximately 400 manufacturers and 400 services sector companies, and the flash readings are early indications based on 80% to 90% of responses.

Furthermore, the composite figure is a weighted average of the manufacturing output index and the services PMI.