JP: PMI Manufacturing Index

Tue Mar 31 20:35:00 CDT 2015

Consensus Actual Previous
Manufacturing - Level 50.4 50.3 51.6

The March manufacturing PMI dropped to its weakest reading in the current ten-month sequence of expansion. The reading was 50.3, down from 51.6 in February. The latest data highlighted a weaker improvement of operating conditions in the Japanese manufacturing sector. Production growth slowed to the weakest since October 2014, alongside a decline in new orders. Subsequently, employment levels declined for the first time in six months in March. Cost pressures persisted, as input prices continued to rise, albeit at a slower rate.

Manufacturing production growth eased after having expanded in February at the quickest pace since before the higher sales tax was implemented in April 2014. Output increased at a faster rate than the long-run series average, with some panelists mentioning stronger demand from international clients. The slowdown in output growth was underpinned by a contraction in total new orders in March. This marked the end of a nine-month sequence of growth. That said, the rate of decline was only slight.

PMI data suggested that the recent fall in total new orders was mainly caused by poor domestic market conditions, as new export orders remained in positive growth territory for the ninth successive survey period in March. Several companies mentioned a favorable yen/dollar rate helping to improve price competitiveness, while some firms commented on higher trade volumes with China, Korea, the US and Europe.

As a consequence of the depreciation of the yen, cost pressures persisted in March, as companies reported steep increases in imported raw material prices. However, input price inflation eased to the slowest rate since July 2013. Meanwhile, output charges declined for the second month running, but only at 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.