(Bloomberg) -- A key gauge of the strength of Japan’s service sector rebounded in July, while a measure of factory activity showed a contraction in the latest indication of the economy’s patchy performance.
The au Jibun Bank purchasing managers’ index for the service sector climbed to 53.9 from 49.4 in June, reaching a three-month high, S&P Global reported Wednesday, an encouraging sign that domestic demand may have enough strength to support growth and inflation outside the factory sector.
But the reading for manufacturing showed activity shrinking again at 49.2, down from 50.0. A composite index picked up to 52.6 from 49.7.
The contrasting figures point to the uneven performance of the economy as Japan struggles to return to a solid growth path after contractions in five of the last 11 reported quarters, including a 2.9% annualized slide in the three months to March.
Still, the improvement in service sector activity offers a sign that demand within the economy may be stronger than suggested by consumer spending data. That would be a positive development for policymakers concerned about private consumption and the impact of inflation on households and businesses.
The Bank of Japan meets next week to decide on policy and its plans for cutting back its bond purchases. Officials see weakness in consumer spending complicating their decision over whether to raise interest rates, according to people familiar with the matter in a report on Monday.
“Service providers saw a solid rise in new business, however new work at manufacturing firms fell at the steepest rate since February,” said Usamah Bhatti, an economist at S&P Global Market Intelligence. Bhatti flagged a 10th straight month of improved staffing levels as a positive development for employment.
About 30% of central bank watchers predict the BOJ will hike interest rates at next week’s meeting, with more than 90% seeing a risk of such a move, according to the latest Bloomberg survey.
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