JP: PMI Manufacturing Index

Sun Mar 01 19:35:00 CST 2015

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Manufacturing - Level 51.6 52.2

Japan's final February manufacturing PMI reading was 51.6, down from January's 52.2, but signaling a moderate overall improvement. The reading was above the long run series average. Latest data highlighted a positive improvement in operating conditions in the Japanese manufacturing sector. Production increased at the fastest pace since before the higher sales tax was implemented in April 2014, while there was a sustained moderate rise in new orders. Subsequently, manufacturers hired additional staff in February, although at a slower pace. Meanwhile, inflationary pressures persisted, as input prices continue to rise at a marked rate.

February data signaled growth in total new orders for the ninth successive month. Firms attributed the latest increase to improved marketing strategies and stronger demand for new products launched. Despite slowing from the previous month, the rate of expansion remained above the long-run series average. New orders from abroad rose at the fastest pace since December 2013. Firms commented on the falling yen/dollar rate leading to greater exports volumes, with some mentioning increased trade with Korea and China. All three monitored sectors signaled export growth, with consumer goods producers registering the sharpest rise in new work both for total and overseas sales.

The negative side of the depreciation of the yen was seen through purchasing costs, which rose sharply due to a steep hike in raw material prices. Output charges, on the other hand, declined for the first time since August 2014, but at only a slight pace.

The Markit/JMMA Japan Manufacturing PMI is a composite index based on five of the individual indexes: New Orders, Output, Employment, Suppliers' Delivery Times and Stock of Items Purchased. The Delivery Times Index is inverted so that it moves in a comparable direction.

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data such as the purchasing managers' manufacturing indexes, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly and causing potential inflationary pressures.