TOKYO, Aug 22 Reuters Japan39;s factory activity shrank in August amid subdued demand although the pace of decline slowed, while the service sector expanded, showing upbeat conditions in some industries, a business survey showed on Thursday.

Rising price pressures and labour constraints, however, continued to be a concern for Japanese firms, especially in the service sector, the survey found.

The au Jibun Bank flash Japan manufacturing purchasing managers39; index PMI rose to 49.5 in August from 49.1 in July.

The index stayed below the 50.0 threshold separating growth from contraction for a second straight month.

Demand trends diverged as a solid rise in services new business contrasted with subdued demand conditions in the goods producing sector which will be worth monitoring, said Jingyi Pan, Economics Associate Director at SP Global Market Intelligence, which compiled the survey.

The subindex for new orders contracted at a slower pace in August, while that for output expanded as higher workforce capacity helped clear a backlog of orders in the manufacturing sector.

Output price inflation eased in August as manufacturers hesitated to lift selling prices, although average input costs rose at the fastest pace since April 2023, showing pressures are persistent.

The au Jibun Bank flash services PMI grew to 54.0 in August from 53.7 in July. Solid new business inflows including export business helped the uptick in activity.

The au Jibun Bank flash Japan composite…