TOKYO, Jan. 12 (Xinhua) -- Sentiment in Japan's service sector dropped in December for the first time in five months, owing in part to worries linked to labor shortages and consumption, the government said in a report on Friday.

According to the Cabinet Office's monthly "Economy Watchers" survey, the current conditions index fell 0.2 point from November to 53.9. The government, however, maintained its assessment that the economy is "moderately recovering."

Some respondents in the latest survey noted that labor shortages in non-manufacturing sectors had become an issue and increasing energy costs were compounding the problem.

The forward-looking index, which gauges conditions two to three months ahead, fell 0.7 point to 52.7, owing to concerns about the continued rise of fresh food and energy prices and a possible drop in the numbers of inbound tourists.

Segments of the economy surveyed in December included sectors such as retail, restaurant service, and taxi driving, and the monthly report serves as both a consumer confidence indicator and a leading indicator for the rest of the economy.

The drop in December's current conditions index was due to more people seeing business conditions in Japan as "getting worse" and less people saying things are "getting better."

The monthly government survey is gauged by a score above 50 meaning those "watchers" surveyed have an optimistic feeling about business conditions and a score below 50 meaning the opposite.

The outcome of the monthly survey is followed closely by the Bank of Japan (BOJ) as it reflects retail sector sentiment more precisely than some other government data.

In its latest poll, the Cabinet Office surveyed 2,050 workers nationwide from Dec. 25 to 31 and the response rate was 1,841 workers or 89.8 percent.