TOKYO (Reuters) - Activity in Japan's services sector expanded at the fastest pace in six months in April as new orders picked up, a private survey showed on Wednesday, suggesting the economy got off to a strong start in the second quarter.
But the survey also showed a dip in business confidence as companies struggle to hire workers amid a labor shortage.
The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to 52.5 in April on a seasonally adjusted basis from 50.9 in March.
The index remained above the 50 threshold that separates expansion from contraction for the 19th consecutive month and reached the highest in six months.
"Following successive months of softening output growth through February and March, Japan's service sector started the second quarter by gathering some momentum," said Joe Hayes, economist at IHS Markit, which compiles the survey.
"Panelists noted that increased competition and rising labor shortages may impact output potential over the coming 12 months."
New business expanded at a faster pace than in March, though future business expectations eased to the lowest in seven months.
The composite PMI, which includes both manufacturing and services, rose to 53.1 from 51.3 in March.
Japanese manufacturing activity also expanded at a faster pace in April, a survey showed on Tuesday, with domestic demand picking up but export order growth slowing sharply due to the stronger yen.
Japan's economy is forecast to have expanded an annualized 0.5 percent in the first quarter as consumer spending and factory output weakened, according to a Reuters poll. That would be a marked slowdown from 1.6 percent annualized growth in the fourth quarter.
The world's third-largest economy has grown for eight straight quarters through the end of 2017, the longest continuous expansion since the 1980s bubble economy.
Some economists are worried that growth could remain sluggish due to a large increase in inventories in the semiconductor and electronic parts sector.