Japan MFG and Service Sectors still growing…but slower

Japan’s tertiary (services) sector index is a fresh release and it signals a modest rebound in activity in November as the sector index edges up to 100.6 form 100.5. Its growth rate (y/y) rises to 1.1% for a 0.9% in November, but is still slower than it has been much of the year previously. It is also above its three-month average. The mining and MFG sector is growing faster that the service sector over the past year with a growth rate of 1.6% compared to the 1.1% for services. Still, MFG sector growth by this index peaked at 4.5% in Februaru and at 4.4% in August. Since August the MFG slowdown has been pronounced. The slip in MFG growth to 1.6% November is from 3.6% on October.

The chart on the left shows that one signal of a slowdown in Japan is when the MFG and Mining sector index grows slower than the service sector index. There are three examples of that happening since 1997 and two of them were in recessions. So far Japanese officials are still upbeat about the economy. The slowing in the MFG sector and crawling growth rate in services are reminders of how close Japan remains to the edge that separates slow growth from contractions.