Business costs hit a 43-month high, halting 13 months of sector growth as Middle East disruptions and labor expenses rise.
Japan’s services sector stagnated in May, with the PMI holding at 50.0, ending a 13-month expansion streak. The stall was driven by a record surge in business costs, fueled by Middle East war disruptions, higher fuel and energy prices, and rising labor expenses.
The composite Output Index fell to 51.1 from 52.2 in April, with manufacturing the sole growth driver. Input costs rose at the fastest pace in 43 months, while output price inflation reached its second-highest level since 2007. New orders grew at the slowest rate in 23 months, and export business declined sharply.
Employment growth slowed to a nine-month low, and business confidence remained below post-pandemic averages. Analysts warned that manufacturing growth may fade as temporary stockbuilding unwinds, with the outlook tied to geopolitical developments.