December’s seasonally adjusted Nomura/JMMA Japan Manufacturing Purchasing Managers’ Index remained below the critical 50.0 no-change mark for a 10th successive month in December to signal a further deterioration of operating conditions in the Japanese manufacturing sector. Moreover, the headline index posted its lowest level in the survey history, recording 30.8, down sharply from 36.7 in November.
Japanese manufacturing production declined at by far the steepest rate in the survey history in December. Falling output levels have now been registered for 10 consecutive months. The latest contraction generally reflected rapidly declining new order volumes and extremely adverse market conditions.
Volumes of new orders received by Japanese manufacturers fell at the most marked rate recorded by the series to date. Panelists cited a sharp reduction in client demand as the principal contributor to the latest contraction. In line with rapid declines in both new business and output, volumes of new export orders contracted at the sharpest rate since the inception of the series in October 2001. Anecdotal evidence attributed lower export receipts to severe reductions in overseas demand, reflecting the deteriorating health of the global economic environment.
In December, average input prices fell for the first time since September 2003. This was in sharp contrast to the strong rates of inflation recorded throughput much of 2008 so far. There were widespread reports that a number of raw materials had fallen in price, while several panelists linked lower input costs to stagnant market conditions.
Reduced costs and increased competition led to price discounting in December, with output charges falling for the first time since August 2007. Moreover, the data pointed to a solid rate of deflation.
Firms were able to clear existing contracts at the sharpest rate since the series began. Anecdotal evidence linked the latest acceleration of backlog clearance to a sharp contraction of incoming new business.
Job shedding in the Japanese manufacturing sector quickened in December, as firms responded to lower production requirements by reducing the size of their workforces at the fastest rate since February 2002.
With a number of survey participants anticipating lower output requirements in the first quarter of 2009, firms’ input buying fell at comfortably the fastest pace since the inception of the series in October 2001.
Meanwhile, average vendor performance improved at the most marked pace in the survey history, reflecting the steep contraction of demand for raw materials.
Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, economist of Financial & Economic Research Centre at Nomura, said: “The very sharp fall in the December PMI pointed to a rapid deterioration in economic conditions. Although the Japanese government announced an additional economic stimulus package, it will be difficult to implement in the near-term. We expect a severe contraction in the Japanese economy lasting at least to the end of the current fiscal year. Exports have been an important driver of the Japanese economy, but the New Exports Orders Index fell sharply in December. Unless the index improves, the Japanese economy may continue to deteriorate further.”
