TOKYO (Reuters) -Japan's service sector activity rose at the fastest pace in five months in July, thanks to brisk domestic demand that offset a sharp drop in export orders and weaker tourist numbers, a private sector survey reported on Tuesday.
The S&P Global final Japan Services purchasing managers' index (PMI) climbed to 53.6 in July from 51.7 in June, marking the strongest expansion since February. A PMI reading above 50.0 indicates growth in activity, while that below the threshold points to contraction.
New service business orders grew at the quickest pace in three months, supported by improved customer numbers, according to the survey.
However, new export orders fell for the first time since December and at the fastest rate in over three years due to low tourist numbers in July, it showed.
Some survey respondents attributed the weak tourist figures to speculative concerns about an earthquake in July.
Employment in the service sector was unchanged from the previous month, ending a 21-month growth streak, with some respondents citing labour shortages and budget constraints as challenges to hiring.
Price pressures continued to ease in July. Input cost inflation was the slowest in 17 months, while output costs rose at the softest pace in nine months.
The composite PMI, which combines manufacturing and services, rose slightly to 51.6 in July from 51.5 in June, marking the strongest overall business activity growth since February.
"However, this reflected a steep increase in business activity at service providers, as factory output fell back into contraction...forward-looking indicators were a little less upbeat in July," said Annabel Fiddes, economics associate director at S&P Global Market Intelligence.
The U.S.-Japan trade deal announced last month could lift Japanese firms' confidence and consumption to offer "a much-needed boost to the manufacturing economy", Fiddes added.
(Reporting by Kantaro Komiya; Editing by Sam Holmes)
