Source: Markit

Japan today reported that industrial production and retail sales recovered in July but manufacturing PMI (Purchasing Managers' Index) hit a fourteen-month low in August, as new orders fell and output growth slowed.

Factory output rose 0.3% from June, the Trade Ministry said in Tokyo today, after dropping 1.1% in June while retail sales advanced for a second month on a seasonally adjusted basis, extending a recovery  after dipping at the fastest pace in five years in May.

In August, the seasonally adjusted headline Nomura/JMMA PMI fell to 50.1, down from 52.8 in July, suggesting that growth momentum in the Japanese manufacturing sector continued to lose traction. By market group, operating conditions improved modestly and fractionally in the investment and intermediate goods producing sectors respectively, but deteriorated in consumer goods.

Behind the latest reading, August’s survey pointed to slower output growth and a decline in new business levels. Both staffing levels and stocks of purchases fell since July, while delivery times continued to lengthen.

Manufacturing output rose in August, albeit at the slowest rate in fourteen months. Respondents attributed lacklustre production growth to fewer inflows of new business, which decreased for the first time since June 2009. According to respondents, the fall in new orders reflected widespread economic uncertainty. Although it was reported that demand from South East Asia remained solid, fragile demand elsewhere meant that new export business rose at the slowest rate in the current fifteen-month period of growth.

Backlogs of work fell again in August, decreasing at a modest rate that was faster than in the preceding month. Where a decline in outstanding business was signalled, this was primarily linked to lower levels of new work.

Japanese manufacturing employment fell for the first time in five months during August, although the rate of job shedding was only slight. Panellists reported that reduced employment reflected the voluntary departure of staff.

The strength of the yen was reported by a number of panellists as a factor suppressing price pressures in August. Average input costs rose only marginally, with respondents noting that the price of imported purchases had fallen since July. Meanwhile, manufacturers reported reducing their output charges in an attempt to improve the competitiveness of their products. Output prices have now fallen for twenty-one successive months.

Growth of purchasing activity eased for the fourth month running in August, largely as a result of falling new business, but also in line with lower expectations about future levels of demand. However, lead times continued to lengthen, with a number of panellists citing supply shortages at vendors. Regarding stocks, firms increasingly sought to meet production schedules by utilising existing holdings of inputs in production. Similarly, manufacturers reported a preference towards meeting new orders through the depletion of finished goods inventories.