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The seasonally adjustedNomura/JMMA Japanese Manufacturing PMI (Purchasing Managers' Index) improved in July on last month’s near six-and-a-half year low of 46.5 but, at 47.0, remained well inside negative territory to signal another month of deteriorating operating conditions in the sector. It was the fifth successive month in which the PMI has posted below the 50.0 no change mark and the latest negative outcome largely reflected falling output and new orders.
Manufacturing output declined for a fifth month running during July – and at the fastest rate since January 2002. Over a quarter of panellists indicated that production was down since the previous month, generally attributing the latest contraction to deteriorating order book positions.
July's survey indicated that incoming new orders fell at another marked rate, albeit weaker than in June, when the pace of decline was the strongest in six and-a-half years. There were reports of a subdued mood in product markets, particularly those that were principally domestic facing. While new exports continued to fall, they did so at a slower rate than in recent months as evidence of firm sales to South East Asia partially offset continuing weakness from other regions (such as the USA).
July's survey indicated that incoming new orders fell at another marked rate, albeit weaker than in June, when the pace of decline was the strongest in six and- a-half years. There were reports of a subdued mood in product markets, particularly those that were principally domestic facing. While new exports continued to fall, they did so at a slower rate than in recent months as evidence of firm sales to South East Asia partially offset continuing weakness from other regions (such as the USA).
Latest data showed that the strategically important electrical & electronics sector fared particularly poorly over the month, registering the strongest declines in both new orders and exports over the month.
With production and new order requirements falling over the month, Japanese manufacturers chose to further reduce their purchasing activity. The volume of inputs bought fell for a seventh successive month, albeit at a slower rate than in June. There were some reports of attempts to stockpile inputs in a bid to avoid expected price hikes over the coming months and, for those materials sourced from China, Olympic-related delivery delays in August.
Subsequently, stocks of purchases increased in July at the fastest rate for over a year.
Despite further evidence of a slowing economy, price pressures showed no sign of abating. The oil price shock remained the key source of inflationary pressure, pushing up the costs of related items such as fuel and energy. With raw materials such as steel also reported to have increased in price, the rate of input cost inflation rose to a new survey high.
In response to further margin pressure, a number of manufacturers had little choice but to raise their own output prices. The rate of charge inflation surged to a new series high – despite evidence of falling demand and increasing competitive pressures.
With output and new orders declining, further evidence of slack in the Japanese manufacturing sector was provided in July as backlogs of work continued to fall (again at a considerable rate).
Downward pressure on recruitment activity was subsequently provided, although growth of employment was maintained for the forty-fifth successive month. Where jobs were created, they were generally part of project development and production plans.
Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Paul Smith, Senior Economist at Markit said:“The Japanese manufacturing economy continued to suffer in the face of deteriorating domestic demand and rising cost pressures during the month. Inflation showed little sign of abating, although the falls in world crude oil prices in recent days may provide some welcome respite for manufacturers next month.”
