|Composite - Level||51.9||50.6|
|Services - Level||51.7||51.2|
December services activity continued to grow despite subdued demand conditions signaled by a decline in new orders. Employment growth, meanwhile, slowed to the weakest in the current period of expansion. Upward pressure on input prices rose further, stemming from the deprecation of the yen, while charges increased slightly. The services PMI index climbed to 51.7 from 50.6 in November. This was the second consecutive month that business activity has risen.
The composite index reading was 51.9, up from 51.2 in November, noting a moderate rise in overall business activity. Latest data registered a drop in new orders for the first time in seven months in the Japanese services sector. However, the latest fall was only marginal, as the majority of firms signaled no change in new business since November. This contrasted with a marked increase in new orders at Japanese manufacturers in December.
Volumes of outstanding work at Japanese services firms declined in December, reversing the trend observed in the previous month. Anecdotal evidence attributed the fall to dampened demand conditions and to a fall in new work. As a consequence of the depreciation of the yen, input prices at services companies rose further in December, with the rate of inflation rising solidly from the previous month.
Business sentiment among Japanese service providers improved in December, with the degree of optimism ticking up from November's eight-month low to the highest since September. Several surveyed firms attributed optimism to the expectation of a recovery in the Japanese economy and to an anticipated rise in incoming new orders.
Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the 'Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the 'diffusion' index. This index is the sum of the positive responses plus a half of those responding 'the same'.
Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.
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