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Timothy Wilson Powers

Australia 🇦🇺 service output growth slows to three-month low but the upturn remains solid overall.

Key Findings

January survey data signalled a slowdown in Australian service sector activity growth, with the pace of expansion easing to a three-month low. Furthermore, both incoming new orders and employment increased to the weakest extents since data collection began 21 months ago. On the price front, output charges rose at the slowest rate since July 2017 amid a softer upturn in input costs.

Although activity growth weakened during January, the upturn was solid overall. Panellists associated higher output with positive economic conditions and new product launches.

Australian service providers also signalled a rise in new business in ows, supported by new contract wins and successful marketing. That said, the rate of new order growth was the least marked since data collection began in May 2016.

Despite a weaker upturn in demand, capacity pressures persisted in January, as shown by a further rise in backlogs of work. The rate of accumulation slowed, but remained strong relative to the series average.

Job creation was sustained in January amid activity growth and increased backlogs of work. That said, in line with a decelerated expansion in new business, employment growth was the weakest observed over the 21-month survey history.

Nonetheless, confidence strengthened in January

to a four-month high. Around two-thirds of monitored companies forecast output to rise over the next year, with positive sentiment attributed to planned expansion into foreign markets, organic business growth and new marketing initiatives.

Input cost in ation, albeit strong, slowed markedly in January to a fresh survey low. Firms raised selling prices in efforts to share additional cost burdens with customers. However, output price in ation eased to the slowest since July 2017.

The headline gure derived from the survey is the Commonwealth Bank of Australia Services Business Activity Index, which is designed to provide timely indications of changes in business activity in the Australian service sector. Readings above 50.0 signal an improvement in business activity on the previous month while readings below 50.0 show deterioration.

The seasonally adjusted Business Activity Index registered 53.8 in January, down from 55.1 in December, to signal the slowest pace of expansion in Australian service sector output since last October.

Singapore 🇸🇬 private sector economy was off to a good start in 2018, regaining growth momentum in January. Outlook for the year ahead remains positive, boding

well for employment prospects.

Key points

Faster rises in both output and new orders boost the headline PMI

Jobs growth hits record high

Wage inflation picks up sharply Data collected January 12–25

Growth in Singapore’s private sector economy gained momentum at the start of 2018, driven by faster expansions in both output and new business. Export growth also picked up pace. The upturn boosted employment and inventories as firms moved to expand capacity to meet higher demand.

However, backlogs of work continued to rise, as did price pressures. Overall input cost inflation intensified, prompting firms to raise selling prices at a faster pace from December. Meanwhile, business confidence about the year ahead remained upbeat.

The headline Nikkei Singapore Purchasing Managers’ IndexTM (PMITM) rose to 53.6 in January from 52.1 in December, signalling a solid improvement in the health of the sector. The latest reading was above the 2017 average. The headline index is a composite indicator based on questions on new orders, output, employment, suppliers’ delivery times and inventories, thereby providing an early indication of the health of the private sector economy.

There were further signs of strengthening client demand at the start of the year. Inflows of new business picked up in January, supported by an accelerated growth in export sales. Anecdotal evidence suggested greater demand from overseas markets such as China, South Korea, Malaysia, Indonesia and UAE. Higher sales encouraged firms to scale up output, with the rate of expansion strengthening in January.

The sustained upturn in demand spurred firms to step up hiring. Employment rose at the fastest rate in the survey history during January. While a number of firms mentioned increased part-time employment, there were reports of greater demand for personnel in business development and freelance work.

However, higher workforce numbers failed to alleviate capacity pressure. On the contrary, the level of incomplete business increased again and at a steep rate, posting the largest monthly increase since December 2016.

In response to higher client demand, firms scaled up purchasing activity and built-up inventories. Expanded appetite for inputs further strained supply chains. Vendor performance deteriorated for a sixth month running, though the rate of deterioration was marginal. Survey evidence suggested that personnel shortages affected suppliers’ punctuality.

On the price front, survey data showed inflationary pressures intensifying in January. Input cost inflation accelerated to the greatest in nearly four- and-a-half years, driven up by higher paid prices for inputs and a sharp rise in staff costs. Notably, wage inflation was the fastest since September 2016 following a mild increase at the end of 2017. To protect their margins, companies raised selling prices further and at a faster rate compared to December.

Finally, business expectations about the outlook in the year ahead remained solid, with the Future Output Index above the historical average. Optimism was linked to improved business conditions, higher sales forecasts, planned promotions, outlet expansions, new marketing strategies and a wider product variety.

Jan PMI shows continued growth in Japan’s 🇯🇵 service sector output, with input costs seeing the largest monthly rise in over nine years, driven up by higher food and fuel

prices, according to survey evidence.

Key points

New order growth quickens for first time since October 2017

Firms hire additional staff amid rising backlogs of work

Cost pressures intensify further

Data collection 12-26 January

The Japanese service economy began 2018 positively, with an accelerated pace of activity growth. New business inflows increased at a sharper rate, contributing to a rise in the level of outstanding work and prompting firms to hire new staff. Encouraged by stronger upturns in output and new orders, business confidence strengthened to a 56-month high.

The headline index from the survey – the seasonally adjusted Business Activity Index – increased to 51.9 in January, from 51.1 in December. This signalled a moderate pace of expansion, and the first time that output growth has quickened in the Japanese service sector since October last year.

Concurrently, the manufacturing sector expanded production at the fastest rate since February 2014. The Nikkei Composite Output Index increased to 52.8 during January from 52.2 in December to signal a solid pace of private sector output growth.

According to service providers, stronger growth in output was underpinned by greater new business inflows. New order receipts rose for an eighteenth consecutive month and at a quicker rate in January. Firms noted that demand from new and existing customers had fuelled the upturn.

Similarly, new order growth in the manufacturing sector picked up to a four-year high.

In line with a faster expansion in order book volumes, the level of outstanding business with Japanese service providers increased in January. Firms suggested that staff shortages had contributed to an accumulation in backlogs of work.

Buoyed by stronger sales and output growth, service sector firms maintained a positive outlook towards activity over the coming 12 months. The level of confidence strengthened to the highest since May 2013.

Confident that the growth trend in activity would be sustained, Japanese service providers enhanced operating capacity by hiring more employees. Additional jobs have been created in each of the past 13 survey periods. That said, the latest reading signalled a marginal slowdown in the rate of employment growth.

In the manufacturing sector, additional jobs were created at the joint-fastest pace since April 2014, on a par with February 2017. New staff were hired in anticipation of greater new business inflows.

In line with stronger optimism and robust demand conditions, Japanese service sector firms raised their selling prices in January. In fact, output price inflation accelerated for the third successive month to the sharpest since May 2014.

That said, the rate at which input prices increased continued to outstrip that of selling charges, implying a further tightening of profit margins. The rate of inflation was sharp, quickening to the fastest since August 2008.

Similarly, manufacturers raised output prices to partly offset stronger input cost inflation.

Overall picture for HongKong’s 🇨🇳 economy continues to brighten into 2018. Jan PMI survey indicators suggest that economic activity will likely gain momentum in coming months.

Key points

Faster rises in both output and new business, including sales to China

Optimism hits highest since late 2014

Input cost inflation remains strong

Data collected January 12–26

Growth in Hong Kong’s private sector economy extended into 2018, buoyed by further expansions in both output and new orders. Notably, a sustained increase in Chinese demand supported business activity. Higher sales led to a rise in backlogs. However, lower employment and reduced inventories weighed on the headline PMI. On the price front, firms continued to struggle with higher costs, especially from increased input prices, and sought to protect their margins by raising selling prices.

Encouragingly, business confidence remained positive.

The seasonally adjusted headline Nikkei Hong Kong Purchasing Manager’s IndexTM (PMITM) came in at 51.1 in January, down from 51.5 in December, but marking a further improvement in the health of the sector.

Higher output and new orders were reported in January, reflecting a strengthening of client demand. In both cases, faster rates of expansions were seen. Output saw the largest monthly increase for nearly four years, while new business growth was the highest since February 2015, supported also by greater Chinese demand. Anecdotal evidence suggested an improved economic climate and promotional activity as reasons for increased sales.

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