Source: Markit Economics

Manufacturing PMI (Purchasing Managers’ Index) reports show strong growth in Japan, China and India in December with Japanese export sales boosted by strong demand from China.

Japan

The seasonally adjusted headline Nomura/JMMA PMI registered 53.8 in December, up from 52.3 in the previous month, pointing to a solid improvement in operating conditions in the Japanese manufacturing sector.

Behind the latest PMI reading, December’s survey signalled that output and new business rose at accelerated rates, while staffing levels fell at the slowest pace since August 2008. Faster lead times were signalled for the fourth straight month, while stocks of pre-production goods continued to decline at a moderate rate.

Manufacturing production in Japan rose for the seventh month running during December, increasing at a marked rate that was faster than in the previous month. Those respondents that reported a rise in output widely attributed growth to greater inflows of new work, which increased for the sixth successive month. Data signalled that new order levels rose at a solid rate, although the average rate of expansion for Q4 was slightly slower than in Q3. Where an increase in new business was indicated, respondents frequently linked this to strengthening demand. New product launches were also cited as having supported sales. Growth of new export orders was maintained in December, with the rate of expansion accelerating to the sharpest since July 2004. Higher sales from overseas mainly reflected buoyant demand from China.

Backlogs of work fell for the third successive month in December, declining at a moderate rate that was the fastest in four months. However, the rate of reduction was much slower than the severe declines seen at the start of the year. Staffing levels in the Japanese manufacturing sector fell again in December, although the rate of decline was only marginal and much slower than that seen during the worst of the downturn.

Panellists linked job shedding to restructuring efforts and the non-replacement of departing staff.

Despite easing from November’s near-record, output price deflation in the Japanese manufacturing sector remained steep during December. Pressure from clients to offer discounts and high competition were mentioned by panellists as having generated deflationary pressure in the latest survey period. December data signalled that average input costs remained broadly unchanged from the previous month. Gold and petroleum were both reported to have risen in price since November. Conversely, there were some reports of reduced prices paid for paper and steel.

Purchasing activity amongst firms operating in the Japanese manufacturing sector fell for the first time in six months. However, average vendor performance deteriorated at the most marked rate since September 2006.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, Economist of Financial & Economic Research Centre at Nomura, said: “December’s Japan Manufacturing PMI rose for the first time in three months, by 1.5 points to 53.8. The index remains above the key dividing line of 50.0 and on a moderate recovery track, suggesting that manufacturing production continued expanding while losing some momentum. Exports have remained robust despite the yen’s appreciation, thereby underpinning the improvement in manufacturing activity. The New Export Orders Index - - a leading indicator of Japanese exports - - increased by 2.5 points to 54.7, marking the second straight monthly rise in the index. Export orders from Asia, especially China, are likely to remain strong, supporting Japanese exports sales.”

The Nomura/JMMA Japan Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies.

Source: Markit Economics

China

At 56.1 in December, up from 55.7 a month previously, the headline HSBC China Manufacturing PMI pointed to a marked improvement of operating conditions in the Chinese manufacturing sector that was the second-fastest recorded by the series to date. For Q4 as a whole, the PMI averaged its highest reading in the survey history.

Manufacturing production in China rose sharply in December, with the average rate of expansion for Q4 the fastest since Q2 2004. Where a rise in output was signalled, panellists widely attributed this to greater inflows of new work. There were also reports that growth was supported by new production lines coming on stream. Output levels have now risen for nine successive months.

Latest data pointed to the ninth consecutive monthly expansion of new order volumes received by Chinese manufacturers in December. The rate of increase in new work was considerable, accelerating to the fastest in four months. Those respondents that reported a rise in new business often linked this to buoyant demand from both domestic and external markets. Growth of new export orders was the fastest since March 2005, and in marked contrast to the severe reductions seen in Q4 2008. Foreign order levels have risen throughout the second half of 2009.

Staffing levels in the Chinese manufacturing sector continued to rise in December. Despite easing for the second month running, the rate of job creation was the third-fastest since the start of the series in April 2004. Anecdotal evidence suggested that firms were encouraged to take on additional workers in line with increased production requirements.

December data signalled that prices charged by Chinese manufacturers were raised at a considerable rate that was the fastest since July 2008. Companies reported that a combination of buoyant market demand and rising raw material prices had generated inflationary pressure. Average input costs faced by Chinese manufacturers rose sharply in December. Where an increase in purchase costs was signalled, panellists frequently linked this to rising raw material prices, with steel mentioned in particular. Aluminium, coal, petroleum, textiles and zinc were also cited as having risen in price on the month.

Commenting on the China Manufacturing PMI survey, Hongbin Qu, Chief Economist for China at HSBC said: “The second-round effect of stimulus measures is filtering through to substantially benefit the manufacturing sector as we expected. The significant increase in the Output Prices Index in recent months is due to stronger demand and rising input costs, which have added to inflationary pressures. Yet, we believe inflation will be manageable in the coming months.”

The HSBC China Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 manufacturing companies.

Source: Markit Economics

India

The seasonally adjusted HSBC Markit PMI climbed to its highest level since May at the end of Q4, signalling a faster month-on-month improvement in the health of the Indian manufacturing economy. The PMI has now posted above the no-change threshold of 50.0, signalling expansion, for nine consecutive survey periods. This followed a five-month sequence below the neutral level.

Underpinning the improvement in the PMI were similarly-sharp rises in the indices tracking trends in new work and output. December data pointed to a substantial increase in new business received by Indian manufacturers. Growth was the most marked for fifteen months, which panellists attributed to better economic conditions, business investments, promotional activities and strong reputations for quality. Demand from both domestic and foreign sources rose since November, although the home market remained the main driver of total new business expansion. To accommodate a faster inflow of new work, manufacturers raised production for the ninth straight month and at a considerable pace.

Despite further growth of new orders, latest data suggested that workloads at Indian manufacturers remained manageable in December. Levels of both outstanding business and employment were broadly unchanged on the month.

Indian manufacturers took advantage of favourable demand conditions in December, passing on part of their cost burdens to customers via higher tariffs. Charges were raised for the fourth month running and at a moderate pace similar to that recorded in November.

However, purchasing costs rose more quickly than factory gate prices. Input price inflation accelerated to the fastest pace since September. Respondents highlighted the main source of upward pressure as greater raw material costs. Firms particularly commented on increased fuel, electricity, metal, chemical and food-related expenses.

Faster input price inflation did not deter Indian manufacturers from acquiring more raw materials in December. Buying activity rose at an accelerated pace in line with further new order growth. Moreover, the latest expansion of purchases was sufficient to build additional stocks of pre-production goods. Consequently, input holdings increased for the tenth successive month and at a moderate pace (albeit more slowly than in November).

Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, Senior Asian Economist at HSBC said:“Concerns that growth in India's manufacturing sector was taking a decisive turn for the worse should be allayed by this impressive release. While the headline index didn't quite manage to hit a new cycle high it wasn't far away at 55.6, buoyed by stronger gains in the output and orders components. The rise in the new exports orders index suggests that external demand is also playing an increasingly important role in driving output gains.

“Nevertheless, the release suggests that most manufacturing companies remain cautious about the durability of the recovery. They remain reluctant to hire workers, with the employment balance a touch below 50.0, as well as pass on much of the strong rises in input costs into higher output prices. Both factors will change over time, however, if we are right in suggesting that the economic recovery will continue at a robust pace.”

The HSBC India Report on Manufacturing is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies.