TOKYO (Reuters – Japan’s manufacturing activity grew slightly for the eleventh straight month in December. But, this was due to lower output and weaker order growth.

The services sector saw a slowdown in activity, falling from its two-year peak in the previous month. This suggests that it will take some time before the sector can fully recover from the adverse effects of the coronavirus epidemic.

The seasonally adjusted au Jibun Bank Flash Japan Manufacturing PMI fell from 54.5 to 54.2 in the prior months.

Annabel Fiddes (economy associate director, IHS Markit), who compiles this survey, stated that “Manufacturers as well as services companies indicated softer rates for output and new orders growth than November.”

“Cost pressures were also more severe for manufacturers with average input prices rapidly rising amid reports of increased material costs and shortages.”

According to manufacturers, there was a decrease in supplier delivery time and stock levels and an increase in new export orders.

Fiddes from IHS Markit said that both service-sector and manufacturing firms were less positive about the business environment in the next 12 months.

She said that concerns over rising costs, supply chain issues and the unpredictability of the pandemic (including the new strains), have lowered overall optimism to its lowest level in four months.

The Seasonally Adjusted PMI Index of au Jibun Ban Flash Services fell to 51.1. That’s almost two points lower than the monthly final of 53.0.

Composite PMI au Jibun Bank Flash Japan Composite, which uses both manufacturing and service calculations, fell to 51.8, from 53.3 in November.