Japan manufacturing PMI hit 14-month low in August

At 50.1 in August, down from 52.8 in the previous month, the seasonally adjusted headline Nomura/JMMA Purchasing Managers’ Index (PMI) posted only fractionally above the neutral 50.0 threshold, 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 lackluster 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 15-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 signaled, 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. Panelists reported that reduced employment reflected the voluntary departure of staff.

The strength of the yen was reported by a number of panelists 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 21 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 panelists citing supply shortages at vendors. Regarding stocks, firms increasingly sought to meet production schedules by utilizing existing holdings of inputs in production. Similarly, manufacturers reported a preference towards meeting new orders through the depletion of finished goods inventories.

Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, economist of the Financial & Economic Research Center at Nomura, said: “The Japan Manufacturing PMI fell rapidly in August, by 2.7 points to 50.1. Although it remains above the dividing line of 50.0 for the 14th consecutive month, the third successive monthly decline suggests that the slowdown in the pace of manufacturing activity growth intensified. Of the PMI’s five constituent indices, the New Orders Index made the largest contribution to the decline in the overall PMI. This index fell by 5.6 points to 48.0. We attribute the deterioration in new orders to a weakness of external demand. August’s New Export Orders Index fell sharply, by 4.5 points to 50.9. While this index also remained above 50.0 for the 15th consecutive month, it clearly signaled that export growth has lost momentum. We see the recent strength of the yen, trending at around $1/¥85, as having a negative impact on exports.”