TOKYO (Reuters) - Japan's December service activity expanded at a faster pace from the previous month thanks to strong demand and a lift in confidence even though the overall growth rate was modest, a business survey showed on Friday.
The service sector has been a bright spot for the world's third-largest economy, marking 16 consecutive months of growth and helping offset some of the drag on momentum from the struggles facing manufacturers.
The final au Jibun Bank Service purchasing managers' index (PMI) climbed to 51.5 in December from 50.8 in November when it posted the slowest growth in 2023, according to index publisher S&P Global Intelligence.
It was below the flash reading of 52.0 but remained above the 50.0 threshold separating expansion from contraction. Overall, the headline figure was the second softest for last year compared to those in early and mid-2023.
An upturn in new business volumes, led by domestic customers, anchored the growth, the survey said.
"Firms were also confident that this would lead to continued rises in activity, as indicated by a brighter degree of confidence in the 12-month outlook, which was supported by hopes of economic recovery and long-term business expansions," said Usamah Bhatti, economist at S&P Global Market Intelligence.
Optimism in December rose to a four-month high, while business expansions and vacancies being filled led to employment growth for three straight months, according to the survey.
New export business remained in contraction for the third month but the downturn was the mildest in that period.
At the same time, rising operating costs prodded service providers to increase prices charged at the strongest pace since August. Rising raw material, fuel and labour costs pushed up input inflation in December but the pace of increase was among the weakest seen over the last two years.
Japan's services industry has benefited from a burst of tourist arrivals, with some 2.44 million people visiting the country in November, narrowly missing the pre-COVID total recorded in the same month in 2019.
The composite PMI, which combines the manufacturing and service activity figures, improved to 50.0 in December from 49.6 in November.