The Nomura/Japan Materials Management Association Purchasing Managers’ Index (PMI), a composite indicator designed to provide a single-figure snapshot of the health of the Japanese manufacturing sector, signaled an improvement in operating conditions for a 47th successive month at the start of the second quarter of 2007. However, at 52.3, down from 52.5, the headline index suggested only moderate growth that was the weakest since February 2005. Though output increased at a stronger rate, there was only a marginal rise in volumes of new work, while employment increased at its slowest pace for well over a year.
At its current level, the PMI remains consistent with overall economy growth of below 2 percent year-on-year.
“The latest data provide mixed signals on where the manufacturing sector is heading,” said NTC economist Paul Smith. “While the survey shows that production increased at a rate consistent with a healthy 2 percent year-on-year rise in manufacturing output, the forward-looking indicators are less positive. New orders increased only marginally, amid reports of subdued domestic demand, and there were tentative signs that a weaker
Stronger output growth, but new orders rise only slightly
April’s survey data indicated the strongest rise in manufacturing output since November, and growth has now been recorded for 28 successive months. Latest data showed that clothing & textiles and mechanical engineering recorded the sharpest underlying rises in production.
The robust increase in output was only partly facilitated by higher new orders in April, as latest data showed the weakest rise in sales since January 2005. Reports from respondents suggested that domestic demand was relatively weak, though there remained opportunities in overseas markets, especially
As output rose at a considerably stronger rate than incoming new orders during April, Japanese manufacturers were again able to reduce levels of unfinished work. Backlogs fell for a third successive month, with the rate of contraction the strongest recorded by the survey since May 2003.
Employment continued to rise, but at slower pace
Faced with rising current production requirements, Japanese manufacturers continued to add to their workforces in April. Overall employment rose for a 30th successive month, though the rate of growth weakened to its lowest since January 2006, as a number of companies chose not to replace leavers.
Input price inflation accelerated…
Input prices continued to rise in April and, following eight successive monthly falls, the rate of inflation accelerated. Metals such as aluminum, copper, nickel and stainless steel were all reported to have risen in price since the previous month. Panelists widely commented that strong demand and the short supply of commodities on world markets had continued to drive the cost of their purchases higher.
Highlighting the short-supply of raw materials, latest data showed a further lengthening of average lead times in April. Average vendor performance has now deteriorated in each month since February 2003. As part of efforts to circumvent short supply and rising prices, a number of manufacturers added to their stocks of purchases during April.
…but output prices cut for third month running
With market competition strong, manufacturers were unable to pass on their higher input costs to clients in April. Output charges fell for a third successive month (albeit only marginally).
