|Composite - Level||48.4||50.0|
|Services - Level||48.4||48.5|
The March business activity index reading was below the crucial 50 no change mark for a second consecutive month, signaling deterioration of the service sector. The reading was 48.4. New orders stagnated with service providers continuing to reduce their staffing numbers albeit at a slight pace. Meanwhile, cost pressures were evident, as purchasing costs increased and at a faster rate than the previous month. Although only moderate, the rate of contraction was faster than the average since the higher sales tax was implemented in April 2014.
Panelists mentioned a slowdown in sales volumes and a fall in contracts leading to the latest decline in activity. Meanwhile, latest data highlighted a weaker improvement of output in the Japanese manufacturing sector. The composite output index posted at 48.4, indicating a slight contraction in overall activity.
As a consequence of the appreciation of the dollar against the yen, cost pressures persisted in both the manufacturing and service sectors, as companies reported rises in imported raw material costs. Prices charged at Japanese services firms rose for the fourteenth month running in March. According to anecdotal evidence, an increase in raw material costs led service sector providers to pass greater costs on to their clients. On the other hand, manufacturers reduced their charges slightly, with firms mentioning price negotiations with clients.
Finally, despite reports of weak demand conditions, Japanese services companies remained positive with regards to activity over the coming year. Moreover, the degree of sentiment was little-changed from February, when confidence was the strongest since September 2014. Expectations of sales growth and an anticipated expansion in new business were cited as the main factors behind the optimism.
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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