TOKYO (Reuters – Japan’s manufacturing activity grew the least in three years in May due to supply shortages and China’s COVID-19 lockdowns. Output and new orders growth slowed.

On stronger domestic demand following the disappearance of the pandemic’s impact, activity in services improved for the second month in a row. Service-sector businesses were however hit hard by the sharpest ever rise in input costs.

Au Jibun Bank Flash Japan Manufacturing Purchasing Directors’ Index (PMI), a seasonal adjusted 53.2, fell from a May final 53.5. This is the 50-mark that separates expansion from contraction.

Both output and overall new orders grew slowly in the last three months due to uncertainty about price and supply trends.

In a sign that Japan is not as dependent on China and Asia, the pace of overseas orders fell at an alarming rate since July 2020.

Input prices of manufacturers rose at an ever-increasing pace for the 24th consecutive month, with delivery times increasing to the highest extent since April 2011.

“Private sector firms reported that the reduced impact of COVID-19 had lifted services activity, most notably in the tourism sector,” said Usamah Bhatti, economist at S&P Global (NYSE:) Market Intelligence, which compiles the survey.

“That being said, China’s renewed lockdown and Russia’s economic sanctions during the Ukraine war have exacerbated supply chain disruptions with more reports of severe delays and material shortages.”

Au Jibun Bank Flash Services PMI Index rose to 51.7 in May, a seasonally adjusted increase from 50.7 in the previous month. This was despite slower growth in manufacturing activity.

From a April 51.1 final, the composite au Jibun Bank Flash Japan Composite PMI rose to 51.4.