At 54.7 in May, up from a revised figure of 53.8 in the preceding month, the seasonally adjusted Nomura/JMMA Purchasing Managers’ Index pointed to a solid improvement in Japanese manufacturing sector operating conditions that was the fastest since September 2006.
Behind the latest PMI reading, May’s survey indicated faster increases in both output and new business, while job creation was signaled for the second successive month. Meanwhile, stocks of purchases continued to fall as firms responded to further delays in the supply chain by utilizing existing inventories in production.
Manufacturing output in Japan rose again in May, increasing at a marked rate that was the fastest in 2010-to-date. Where a rise in production was signaled, this was frequently linked by panelists to greater inflows of new business, which rose for the 11th month running in May. The rate of expansion in new work was marked, and accelerated to the sharpest in seven months. According to survey respondents, new business growth reflected greater demand from both domestic and external markets. Despite easing from the previous month, the rate of expansion in new export business was substantial. Anecdotal evidence suggested that South East Asia and China were key sources of new export business.
Backlogs of work were accumulated for the second successive month in May. Prior to this period of growth, outstanding business had fallen for six months in a row. Furthermore, the pace of expansion was the most marked since July 2006. Growth of unfinished business primarily reflected further gains in new business.
Japanese manufacturing employment continued to rise in May, increasing at the fastest rate since April 2008. Those respondents that reported a rise in staff numbers often linked growth to greater inflows of new business. Some respondents also mentioned that employment growth reflected an increase in graduate intakes.
Average input costs rose for the fifth successive month in May, with prices paid for copper, fuel and steel all reported to have risen on the month. The rate of inflation was marked, but slower than in the previous month. Nonetheless, strong competition restricted the ability of manufacturers to pass on higher costs to clients, with output prices falling for the eighteenth month in succession. Respondents also commented that output price deflation reflected client requests for lower prices.
Purchasing activity rose in May, largely as a result of higher intakes of new business and a subsequent rise in output requirements. Meanwhile, increased delivery delays meant that firms opted to utilize existing stocks of raw materials in production.
Commenting on the Nomura/JMMA Japan Manufacturing PMI data, Minoru Nogimori, economist at Nomura’s Financial & Economic Research Centre, said: “The Japan Manufacturing PMI in May rose for the third consecutive month, by 0.9 points to 54.7. It remains above the dividing line of 50 for the 11th consecutive month, suggesting that manufacturing operating conditions remain solid. The New Export Orders index fell 1.5 points, but it was still high at 57.5. Although global financial markets have remained unstable due to European fiscal risk, strong growth in exports continues to underpin the manufacturing recovery. We expect exports to Asia, especially China, to remain firm, supporting the Japanese economy for a while. Moreover, the PMI survey showed that the employment situation is also improving steadily. The Employment Index rose 0.4 points to 51.4, remaining above 50.0 for the second consecutive month. With production activity in the manufacturing sector anticipated to maintain its recovery path, we expect the improvement in employment to continue over the coming months.”
