Japanese service sector contracted for the third successive month and at a slightly faster pace in June, the results of a survey by Markit Economics showed Thursday.
The Markit service purchasing manufacturers' index, or PMI, decreased to 49 in June from 49.3 in May, with the recent hike in sales tax weighing on output.
Employment levels in the service sector declined for the first time since December 2013. However, the rate of decline was softened due to an increase in new orders in June, which rose for the first time since March.
Input costs continued to rise, continuing the trend which began in November 2012 and output prices rose for the fifth straight month in June, marking their longest inflation stretches in survey-history. This increase was driven by steeper fuel prices and the sales tax hike. However, the rate of increase in output prices eased to the slowest rate since March.
Outstanding work decreased for the first time in four months in June. Meanwhile, business activity expectations for the next twelve months was more optimistic compared to the current situation, possibly due to predictions of improvements in incoming new work.
The composite output index, a measure of overall private sector activity, increased to 50 in June from 49.2 in May, signaling stagnation. The increase reflected a rebound in manufacturing activity.
Manufacturing activity data released earlier this week showed an improvement in activity levels due to production and new orders increasing for the first time since March in June. However, employment levels rose at the slowest pace since October 2013.
Commenting on the service sector performane, Amy Brownbill, Economist at Markit, said, "If this trend in new work is sustained, then it looks increasingly positive that overall growth in activity for Japanese services will return.
"New policies by Shinzo Abe which many are calling the 'third arrow' are aimed at improving the employment rate. It will be interesting to see in the coming survey data whether the effects of the policy have the desired effect." she added.
