The Japanese manufacturing economy ended 2007 on a positive note, expanding at its strongest pace since April. Solid overall growth reflected stronger gains in output and new orders, as demand improved, particularly from domestic markets. In line with emerging capacity constraints, employment was raised to its greatest extent for six months.
On the prices front, average input price inflation remained high, largely reflective of the increased cost of petroleum and its by-products. In response, Japanese manufacturers raised their average output prices at the sharpest rate in the survey history.
The headline Nomura/JMMA Purchasing Managers’ Index (PMI) – a composite indicator designed to provide a single-figure snapshot of the health of the manufacturing sector – registered 52.3 in December, up from 50.8 in the previous month. It was the highest PMI reading recorded for eight months and was indicative of solid sector expansion.
“Despite facing the dual headwinds of the credit crisis and high oil prices, the Japanese manufacturing sector ended 2007 surprisingly well,” said NTC economist Paul Smith. “A number of key variables strengthened since the previous month, with overall growth reaching its highest since April. The latest data also implied that the domestic market made a stronger contribution to sector performance than in the previous month, as total new export orders rose at a slightly slower rate. While the PMI is clearly on an upward trajectory, it is probably too early to suggest a full-blooded recovery is under way and that the Bank of Japan will restart its preferred policy of rate normalization. This is largely due to the aforementioned headwinds – and continued concerns over the impact that a (potentially) prolonged downturn in the American economy may have on Japanese export performance.”
Output increased in December for a second successive month and at the strongest pace since April. Solid production growth was closely linked to a similar rise in incoming new business, which also increased for the second month in a row. Total new orders rose at their strongest pace since the start of the year, with companies commenting that demand was generally firmer than in November. At the sector level, vehicle manufacturing continued to perform extremely well in terms of new orders and output. In contrast, production and new business in the electrical & electronics sector declined.
Latest data and anecdotal evidence pointed to a stronger contribution to overall sales from the domestic market. While new export orders continued to rise at a solid pace – reflective of robust demand from
The rise in total new business resulted in some capacity pressure at manufacturers in December as work outstanding rose for the first time in eleven months. Faced with higher backlogs and increased production requirements, a number of companies responded by adding to their payrolls. The overall rate of employment growth accelerated since the previous month and was the strongest since June.
The high price of petroleum and related items such as petrochemicals underpinned another sharp increase in average input costs during December. Paper and food products were also reported to have risen in price, although the overall rate of input cost inflation eased on the previous month’s near survey high. Faced with further margin pressure, Japanese manufacturers increased their average output charges at a solid pace that was the strongest in the survey history.
With production requirements increasing in December, Japanese manufacturers raised their purchasing activity for the first time in eight months. The modest increase in buying activity was insufficient to prevent a slight fall in stocks of purchases, although increased demand for inputs placed some additional pressure on suppliers. Average lead times for the delivery of inputs lengthened to their greatest extent in nine months.