JP: PMI Composite

Wed May 06 20:35:00 CDT 2015

Actual Previous
Composite - Level 50.7 48.4
Services - Level 51.3 48.4

April services PMI reading was 51.3 and was above the crucial 50.0 no change mark for the first time since the start of 2015, thereby signalling growth of output in the Japanese service sector. Although only moderate, the rate of expansion was faster than the average over the past 12 months. Several panelists mentioned an increase in sales volumes, while others commented on greater tourism leading to growth in activity. Meanwhile, latest data signaled worsening operating conditions in the Japanese manufacturing sector. The Composite Output Index posted at 50.7 in April, indicating a slight expansion in overall activity.

Service activity expanded after having contracted in the previous two survey periods, while new orders increased at the fastest pace in five months. Subsequently, services firms hired additional staff in April. Meanwhile, upward cost pressures were evident as input prices continued to rise, although at a slightly slower rate than observed in the prior month. The expansion in overall service sector activity was supported by a return to new business growth in April. Furthermore, the latest increase was the fastest since November 2014. Service providers hired additional staff in April. Although only modest, the rate of increase in employment was the quickest in five months. Similarly, in the manufacturing sector, employment levels increased in April, albeit at a weak rate.

Input costs at Japanese services firms continued to rise for the thirtieth straight month in April. According to panelists, the latest increase was due to a combination of higher staff wages and an exchange rate driving up imported raw material costs. Manufacturing sector input price inflation slowed to the weakest in over two years, while charges declined for the third straight month, but at a slight pace.

Prospects of activity growth over the coming year strengthened further in April. The degree of optimism was the joint-strongest in over one-and-a-half-years. Expectations of greater sales growth, a gain in new clients, an expansion in new business and an anticipated improvement in the market economy were cited as the main factors behind the optimism.

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.