Japanese manufacturing PMI drops to four-month low

The seasonally adjusted Nomura/JMMA Purchasing Managers’ Index remained above the neutral 50.0 threshold in July, pointing to a further improvement of operating conditions in the Japanese manufacturing sector. However, the index fell to a four-month low of 52.8, from 53.9 in June, to signal that the rate of improvement was only modest.

Behind the latest PMI reading, July’s survey pointed to slower increases in both output and new business. Employment growth remained modest, while stocks of purchases fell moderately. Meanwhile, slower lead times were signaled for the 11th month running.

Manufacturing production in Japan rose again in July, although the rate of expansion was the slowest in 13 months. Where a rise in output was signaled, survey respondents often linked growth to greater inflows of new business. A number of panelists that indicated a drop in output attributed this to policies aimed at utilizing existing stocks of finished goods.

The level of new business received by Japanese manufacturers continued to rise in July, mainly reflecting firmer market demand. However, a number of panelists cited the uncertain economic outlook as having negatively impacted upon clients’ spending decisions. Subsequently, the overall rate of new business growth eased to the slowest since March.

Japanese manufacturing employment rose further in July, reflective of continued gains in new business and, in some cases, company expansion plans. The rate of job creation was modest, and slightly faster than in June. Staffing levels have now risen for four successive months.

Average input costs faced by Japanese manufacturing firms rose for the seventh month running in July. The rate of inflation was nevertheless the slowest since February, and below the long-run series average. Prices paid for steel and iron ore were both reported to have risen since June.

Output prices set by Japanese manufacturers fell further in July. The pace at which firms reduced their charges was solid, and the fastest since February. Survey respondents suggested that lower output prices reflected a combination of increased competition for new business and client requests for discounts.

Purchasing activity rose again in July, although the rate of growth dipped to the slowest in four months. This primarily reflected policies aimed at utilizing existing stocks of pre-production goods in production. The rate of destocking was modest, but faster than the series average. Furthermore, slower growth of input buying was insufficient to prevent a further lengthening of lead times. Slower delivery times were predominantly linked by panelists to supply shortages at vendors.

Output prices set by Japanese manufacturers fell further in July. The pace at which firms reduced their charges was solid, and the fastest since February. Survey respondents suggested that lower output prices reflected a combination of increased competition for new business and client requests for discounts.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, economist for the Financial & Economic Research Center at Nomura, said: “The Japan Manufacturing PMI in July dropped 1.1 points month over month to 52.8, falling for a second consecutive month. The headline PMI in July was impacted negatively by drops in the production and new order indices. The indices fell 2.1 points month over month to 53.8 from 55.9 and 1.5 points month over month to 53.6 from 55.1, respectively, both down for the second consecutive month. These results suggest that the expansion of manufacturing output is easing off gradually against a backdrop of slower growth in new orders. The New Export Orders index fell month over month for the third straight month, by 1.5 points, but remained at a high level of 55.4. We expect exports, particularly to Asia, to remain firm and the improvement of manufacturing to continue for some time yet, albeit at a slowing pace.”