Business activity growth in Japan's private sector slowed in September amid a continued manufacturing downturn, survey data compiled by Jibun Bank Corp. and IHS Markit showed.
The flash composite output index, which includes manufacturing and services activities, dropped to 51.5 this month from 51.9 in August. A print below 50 reflects contraction, while a reading above that indicates expansion.
The flash manufacturing purchasing managers' index fell to 48.9 from 49.3, marking its worst reading since June 2016. The flash services business activity index dropped to 52.8 from a nearly two-year high of 53.3 in August.
Employment at service firms dropped the first time in almost three years on increased retirements. Future output expectations eased to a 25-month low.
"Anecdotal evidence further highlighted the strong external headwinds Japanese manufacturers were faced with, namely U.S.-China trade tensions, the Hong Kong protests, Brexit and the diplomatic dispute between Japan and South Korea," said Joe Hayes, economist at IHS Markit.
"The positive takeaway remains that symptoms of economic weakness have yet to spread to the services sector," Hayes said, adding that the coming months will be difficult for consumers and businesses amid the looming sales tax hike in October.
