|Composite - Level||52.3||51.2|
|Services - Level||52.2||51.4|
October growth in the service sector improved to a reading of 52.2 from 51.4 in September. Picking up from September's low growth of activity was robust overall, supported by further expansion in new orders. In contrast, employment levels declined, having increased slightly in the prior month. The overall composite index which includes manufacturing as well increased to 52.3.
Purchasing costs at services firms rose at a faster rate, albeit at a pace weaker than the average over the current three-year period of inflation. Concurrently, charges rose, following a marginal decline in September. Business sentiment eased for the second month running to the weakest since May.
Contributing to the expansion in business activity was an increase in new orders at Japanese services firms. Growth in new work intakes was little-changed from September's low, but was in line with the average seen over the year so far. Manufacturers also registered an expansion in new orders and at the fastest rate in a year.
Despite evidence of greater activity, service sector firms cut back on their staffing levels. Moreover, the rate of decline was the sharpest since December 2011. In contrast, employment increased at Japanese manufacturers to the greatest degree for 18 months. A combination of greater demand and a reduction in staff numbers subsequently led to pressure on capacity at Japanese services firms, as volumes of unfinished work accumulated. On the price front, reports of an unfavorable exchange rate driving up imported costs led to a rise in input prices. Subsequently, service firms increased their charges in order to compensate for greater cost burdens. In the goods-producing sector, input prices rose during the month, while manufacturers' charges declined.
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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