The seasonally adjusted headline Nomura/JMMA Purchasing Managers’ Index (PMI) remained above the neutral level of 50.0 for the third successive month in September, posting 54.5, pointing to the most marked improvement in operating conditions in the Japanese manufacturing sector for three years.
Underlying the overall improvement was a strong and accelerated expansion of manufacturing production, the fastest since February 2006. Anecdotal evidence linked production growth to rising sales volumes and new product developments. Output levels have now risen in each of the past four months. Data revealed that the strongest expansions of output were in the Basic Metals, Chemicals & Plastics and Transport categories, while underlying weakness was again signaled in the key Electrical & Optical and Mechanical Engineering sectors.
September data pointed to the third successive monthly expansion of incoming new business received by Japanese manufacturers. New business growth was again strong, accelerating to the most marked for 43 months. Foreign order levels rose at the fastest rate for 31 months in September, mainly reflecting increased new work from China. For the second month running, the expansion of total new business comfortably outpaced that of export sales, suggesting that the improvement in client demand remained centered on the domestic market.
September marked the 10th successive month in which output prices set by Japanese manufacturing firms were lowered. Output price deflation was again marked, and far steeper than the series average. Respondents reported that prices charged were reduced in response to strong competitive pressures and requests for discounts from clients.
Input costs faced by Japanese manufacturers fell further in September. However, the pace of reduction eased to the second-weakest in the current sequence of deflation, which now extends to 10 months. Those firms that reported a decline in input prices linked this to reduced raw material prices, with steel mentioned in particular.
Reflecting further gains in new business, levels of business outstanding rose in September for the first time since January 2008. However, the expansion of backlogs was only marginal.
Staffing levels in the Japanese manufacturing sector fell again in September, extending the current period of reduction to 14 months. That said, the pace at which job cuts were implemented was the second-weakest in that sequence. Survey responses suggested that the latest fall was due to the non-replacement of departing staff. By sector, mechanical engineering registered the sharpest reduction.
Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, economist of the Financial & Economic Research Center at Nomura, said: “The Nomura/JMMA Japan Manufacturing PMI was at 54.5 in September, staying above the boom-bust line of 50.0 for the third consecutive month. The index, which improved by 0.9 points, marked its eighth straight monthly rise, indicating that operating conditions in the manufacturing sector continued to steadily improve. Meanwhile, the New Export Orders Index, a leading indicator of Japanese exports, posted 54.1 in September, remaining above 50.0 for the fourth consecutive month. The improvement in the index accelerated to 0.9 points m-m, from the 0.5 increase recorded in August. Although there is a risk of rapid economic improvement overseas losing steam, we think that exports are likely to improve until at least the end of this year. However, the pace of improvement in the New Export Orders Index has obviously slowed from the first half of this year as external demand stabilizes. Export orders are an important indicator of the future of the Japanese economy, so we think it is important to continuously monitor them closely.”
