In December, Japan's manufacturing sector maintained its contraction, though the rate of decline eased, according to the latest Jibun Bank survey. The manufacturing Purchasing Managers' Index (PMI) recorded a score of 49.5, a slight improvement from November’s 49.0, yet it still falls short of the critical 50-point threshold that demarcates expansion from contraction.
New orders experienced a sharper decline compared to November, while output registered only a marginal decrease. This was due, in part, to enhanced workforce capacity, which enabled manufacturers to clear backlogs at the most robust rate since March. However, input price inflation remained high in December, showing the steepest monthly increase in four months, which, in turn, led to the most significant rise in output charges since July.
Conversely, the services sector showed progress, with the services PMI rising to 51.4 in December from 50.5 in November. The increase in activity was attributed to a surge in new business inflows, achieving the highest growth rate in four months. Consequently, service providers expanded their workforce to manage persistent workloads and prevent a buildup of unfinished business. Despite above-average optimism in December, some concerns lingered regarding labor constraints and the impact of escalating costs.
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