Nikkei Japan Manufacturing PMI -- final data

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Manufacturing sector continues to improve moderately

Monday, July 2, 2018 1:48 am EDT

"Japan manufacturing PMI data continue to signal that the sector’s current expansion phase still has legs. Output growth edged up in June, supported by further inflows of new work and an accelerated rate of employment growth."

Key points:

  • Output and employment increase at faster rates in June
  • New export orders decline for first time since August 2016...
  • ...while total inflows of new work rise at softest pace in ten months

Data collected June 12 – 22

Summary:

Business conditions in the Japanese manufacturing sector improved further at the end of the second quarter. The upturn was supported by increased inflows of new work, which encouraged businesses to expand both output and employment at faster rates. However, for the first time since August 2016, export sales declined. Nevertheless, overall growth in new work kept pressure on operating capacities, with backlogs of work rising at a sharper pace. On the price front, selling charges were raised to the greatest extent in five months amid sharper input price inflation.

Analysis:

The headline Nikkei Japan Manufacturing Purchasing Managers’ IndexTM (PMI)® – a composite single-figure indicator of manufacturing performance – posted 53.0 in June, up from 52.8 in May, to indicate a stronger improvement in the manufacturing sector. Japan’s goods-producing sector has observed growth in each of the past 22 months. Moreover, the latest rate of expansion was above the average seen over this sequence.

New orders increased during June, albeit to the weakest extent in ten months. Nevertheless, demand has improved in each month since October 2016. Meanwhile, sales to overseas clients declined for the first time in 22 months. Panelists mentioned that a combination of higher prices and weaker demand from North America and China had impacted export performance.

Nonetheless, overall inflows of new work tested capacities at Japanese goods producers in June, as signaled by a rise in outstanding business. Although backlogs of work were accumulated at a faster rate, the rise was only modest overall.

To help alleviate this pressure, production was expanded at an accelerated rate in June. Furthermore, extra staff were hired at a faster pace in order to improve output capabilities. That said, the rate of job creation was still the second-slowest in 2018 so far.

Supply chain troubles were also apparent in June, with average lead times for the delivery of inputs lengthening to a sharp extent. Panelists noted that a combination of raw material shortages and stronger input demand had hampered vendor performance. Purchasing activity was ramped up by Japanese manufacturers in June. Anecdotal evidence indicated that additional materials were acquired in line with higher new order volumes.

However, input prices continued to rise at a steep pace at the end of the second quarter. In fact, the rate of inflation rose to a three-and-a-half year high amid reports of increased costs for oil and metals. Businesses responded by hiking selling charges at the quickest pace in five months. That said, the rate of increase in output prices was only modest overall and markedly slower than that of input costs.

Looking ahead, firms remained optimistic that output growth will continue over the coming 12 months. Positive sentiment was attributed to planned new factory openings and product launches, as well as forecasts of greater demand.

Comment:

Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

“Japan manufacturing PMI data continue to signal that the sector’s current expansion phase still has legs. Output growth edged up in June, supported by further inflows of new work and an accelerated rate of employment growth.

Concerns do remain however, as new order growth eased to a ten-month low and export sales decreased for the first time since August 2016. Moreover, with input price inflation jumping to a three-and-a-half year high, manufacturers may be forced to absorb higher cost burdens in order to remain competitive, particularly if the yen faces further safe haven demand.

Nikkei Japan Manufacturing PMI® is sponsored by Nikkei

Nikkei is a media organization with newspaper publishing at its core. Our flagship daily newspaper, The Nikkei, has approximately two and a half million subscribers. Nikkei's multi-platform media distribution also includes online, broadcast and magazines.

Since our founding in 1876 as the Chugai Bukka Shimpo (Domestic and Foreign Prices News), we have consistently provided high-quality reporting while maintaining fairness and impartiality. The Nikkei brand has become synonymous with trustworthiness at home and abroad.

Nikkei Inc. offers a range of media platforms to satisfy the diverse needs of our readers. At the core of these services is The Nikkei which has a circulation of approximately two and a half million. Adding further depth to our offerings are our premium content and strong digital technology. The number of paying subscribers to the Nikkei Online Edition, which was launched in 2010, has surpassed 500,000. Our fee-based online services have one of the largest readerships in the world among newspaper publishers. Eight years after its creation, the online edition has evolved from a medium for providing news to readers into a tool that helps people advance their careers.

In 2013, we kicked off the Nikkei Asian Review, an English-language news service provided both online and as a weekly print magazine. The following year, we established an Editorial Headquarters for Asia in Bangkok to deepen our coverage of Asian economic news. In addition, we doubled the number of reporters stationed in Asia outside Japan. 2014 also saw the launch of Nikkei Group Asia Pte., a new company in Singapore tasked with spreading the Nikkei brand in the region. Our goal is to make Nikkei the leading media voice in Asia. http://www.nikkei.co.jp/nikkeiinfo/en/

For further information, please contact:

IHS Markit (About PMI and its comment)

Joe Hayes, Economist

Telephone +44 1491 461 006 

Email: joseph.hayes@ihsmarkit.com

 

Jerrine Chia, Marketing and Communications

Telephone +65 6922 4239

E-mail: jerrine.chia@ihsmarkit.com

 

Bernard Aw, Principal Economist

Telephone +65 6922 4226

E-mail: bernard.aw@ihsmarkit.com


Nikkei inc. (About Nikkei)

Ken Chiba, Deputy General Manager, Public Relations Office

Atsushi Kubota, Manager, Public Relations Office

Telephone +81 3 6256 7115

Email koho@nex.nikkei.co.jp

Notes to Editors:

The Purchasing Managers’ Index™ is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 manufacturing companies. The panel is stratified by GDP and company workforce size. The manufacturing sector is divided into the following 8 broad categories: Basic Metals, Chemicals & Plastics, Electrical & Optical, Food & Drink, Mechanical Engineering, Textiles & Clothing, Timber & Paper, and Transport.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month. For each of the indicators the ‘Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion' index. This index is the sum of the positive responses plus a half of those responding ‘the same'. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

The Nikkei Japan Manufacturing PMI® is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers' Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.

IHS Markit do not revise underlying survey data after first publication, but seasonal adjustment factors may be revised from time to time as appropriate which will affect the seasonally adjusted data series. Historical data relating to the underlying (unadjusted) numbers, first published seasonally adjusted series and subsequently revised data are available to subscribers from IHS Markit. Please contact economics@ihsmarkit.com.  

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates. All other company and product names may be trademarks of their respective owners © 2018 IHS Markit Ltd. All rights reserved.

About PMI

Purchasing Managers’ Index™ (PMI®) surveys are now available for over 40 countries and also for key regions including the Eurozone. They are the most closely-watched business surveys in the world, favoured by central banks, financial markets and business decision makers for their ability to provide up-to-date, accurate and often unique monthly indicators of economic trends. To learn more go to https://ihsmarkit.com/products/pmi.html.

The intellectual property rights to the Nikkei Japan Manufacturing PMI® provided herein are owned by or licensed to IHS Markit. Any unauthorised use, including but not limited to copying, distributing, transmitting or otherwise of any data appearing is not permitted without IHS Markit’s prior consent. IHS Markit shall not have any liability, duty or obligation for or relating to the content or information (“data”) contained herein, any errors, inaccuracies, omissions or delays in the data, or for any actions taken in reliance thereon. In no event shall IHS Markit be liable for any special, incidental, or consequential damages, arising out of the use of the data. Purchasing Managers' Index™ and PMI® are either registered trade marks of Markit Economics Limited or licensed to Markit Economics Limited. Nikkei uses the above marks under license. IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates.

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