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Source: Markit Economics
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Japan's manufacturing continued to improve in January but new business growth was weak. At 52.5, the seasonally adjusted Nomura/JMMA PMI (Purchasing Managers’ Index) pointed to a moderate improvement in operating conditions in the Japanese manufacturing sector at the start of 2010. Japan's industrial production rose 2.2% in December 2009, from a month earlier, according to official figures released in Tokyo today. Exports to China climbed 42.8% last month, led by record demand for cars. Another report showed that household spending rose 2.1% in December from a year before and the economy added 130,000 jobs in December.
The jobs rise was the biggest in four months and gains were mainly in the medical, welfare and education sectors, while jobs were cut in manufacturing and retail industries.
Consumer prices in Japan dropped at a record pace in December, resulting in the government to call again for the central bank to step up its fight against deflation.
While year-on-year fall in core prices slowed from 1.7% in November to 1.3% last month, the so-called “core-core” consumer price index, which excludes fresh food and energy prices, dipped 1.2 % in December from a year ago, the biggest decline since records began in 1971.
Behind the latest PMI report, January’s survey pointed to robust output growth and a marginal fall in staffing levels. New business continued to rise, but at a slower rate, and average vendor performance deteriorated for the fifth month running. Stocks of purchases were also reduced on the month.
Manufacturing output rose for the eighth successive month in January, increasing at a robust rate that was comfortably faster than the series average.
Where an expansion of production was signalled, panellists generally attributed growth to higher intakes of new orders, which increased for the seventh month running in January. However, the latest improvement in firms’ order books was the slowest in that sequence amid concerns over the sustainability of economic growth. Export sales placed at manufacturers rose again in January, extending the current period of expansion to eight months. Nonetheless, the pace of expansion was the slowest since last June. Anecdotal evidence suggested that increased new business from China and other Asian countries continued to support export growth.
January data signalled that backlogs were depleted at the fastest rate since last June, largely as a result of slower new business growth and a robust rise in output.
Staffing levels in the Japanese manufacturing sector fell further in January, albeit at only a marginal rate. Those respondents that signalled a decrease in workforce numbers often linked this to restructuring efforts, while there were also some reports of voluntary retirement.
Prices charged by Japanese manufacturing firms were reduced in January. Despite easing further from November’s near-record, the rate of discounting was still solid and faster than the historical average for the series. Panellists reported that client requests for discounts and strong competition for new business continued to suppress firms’ pricing power.
In contrast, average input costs faced by manufacturers rose for the first time in fourteen months during January. Although solid, the rate of inflation was much slower than that seen before the onset of the financial crisis. Where a rise in average input costs was signalled, panellists frequently linked this to higher raw material prices, with oil-related products mentioned in particular.
Although new orders continued to rise, purchasing activity fell again in January, mainly reflecting an uncertain outlook for demand. Even so, average vendor performance deteriorated for the fifth month running in the latest survey period.
Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said: “The Japan Manufacturing PMI fell 1.3 points to 52.5 in January. It remains above the key dividing line of 50.0, but has continued to fluctuate in recent months. Although the PMI has been holding firm, the sharp rebound phase from February through to August in 2009 has lost steam. Furthermore, the New Export Orders Index fell rapidly, by 3.2 points to 51.5, signaling that the yen’s appreciation has depressed exports which are the main factor behind the current recovery in the Japanese economy. Exports are an important factor of the future of the Japanese economy, so it is now increasingly important to monitor the relevant PMI measure closely.”
The Nomura/JMMA Japan Manufacturing PMI is produced by Markit Economics and is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. The panel is stratified by Standard Industrial Classification (SIC) group, based on the industry contribution to GDP.
