Japan's services sector came to a standstill in May, ending a 13-month expansion streak as surging costs linked to the Middle East war dampened demand, a private survey showed Tuesday.
The S&P Global final Japan Services PMI fell to 50.0 in May from 51.0 in April, the threshold separating growth from contraction.
New business growth slowed for the third consecutive month, rising at the weakest pace in nearly two years. New export business saw its sharpest drop since March 2022, as subdued external demand and rising prices weighed on overseas sales.
Input prices rose at the fastest rate in more than three years, driven by supplier price hikes for fuel, energy, and raw materials amid the Middle East war, along with higher labor costs. Service providers passed on these costs, raising selling prices at the fastest pace since April 2014, following Japan's consumption tax increase.
"Rising prices have also impacted demand, especially within the service sector, as households' budgets have come under greater strain," said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.
Employment growth slowed to the weakest rate in nine months, with firms citing staff retirements and resignations.
Business confidence improved slightly for the second straight month but remained weaker than the post-pandemic average due to geopolitical uncertainty, rising costs, and demographic challenges.
The broader Composite PMI, including manufacturing, fell to 51.1 in May from 52.2 in April, marking the slowest growth in five months. The relatively robust manufacturing sector was partly boosted by temporary stock building, which is expected to fade.