|Composite - Level||50.0||51.7|
|Services - Level||48.5||51.3|
February services PMI was 48.5, down from 51.3 in January to signal worsening business conditions at Japanese service providers. The rate of contraction, though only moderate, is the deepest for the average since the increase in the sales tax in April 2014. But the latest data do highlight an improvement in operating conditions in the Japanese manufacturing sector. The composite output index posted at the no change level of 50.0 following a moderate rise in January.
February data signaled a slowdown in service sector incoming new orders to a weak rate. The vast majority of panelists (86%) noted no change in new business in comparison to the previous month. On the manufacturing side, new orders at Japanese goods producers rose for the ninth consecutive month in February, though the latest increase was the lowest in this sequence.
Reflecting the near stagnation in new business growth, volumes of unfinished work at Japanese services firms were unchanged in February, after rising in January at the quickest pace since May 2013. In contrast, pressure on capacity was evident at Japanese goods producers, as backlogs of work accumulated amid reports of higher production requirements.
Reports of weaker demand conditions and a decline in activity subsequently led service sector providers to cut their staff in February for the first time since June 2014. Although only fractional, the decline in employment levels was quicker than the long-run series average. Meanwhile, manufacturers continued to hire staff, although at a fractional pace.
Inflationary cost pressures eased at Japanese services companies in February, as input price inflation slowed to the weakest rate in 28 months. Where purchasing costs rose, panelists commented on a steep hike in raw material prices stemming from the deprecation of the yen. Meanwhile, service sector chargers rose fractionally.
The negative side of the depreciation of the yen was still felt at Japanese manufacturers, as purchasing costs 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.
Despite reports of weak demand conditions, Japanese services firms remained positive in regards to activity over the next year, with business sentiment the strongest since September 2014. Firms linked optimism to expectations of stronger employment growth and an anticipated expansion in new business.
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'.
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.