JP: PMI Composite

Mon Apr 04 21:00:00 CDT 2016

Actual Previous
Composite - Level 49.9 51.0
Services - Level 50.0 51.2

March services PMI reading was 50.0, the breakeven point between contraction and expansion. The composite index however, slipped into contraction with a reading of 49.9.

For services, both output and new orders were unchanged from February, when only moderate increases were observed. Meanwhile, services firms cut back on their staff numbers for the first time since last November. On the price front, input price inflation slowed to a 13-month low, while charges rose only slightly. Forecasts towards the 12-month outlook at Japanese services firms were less optimistic in March, with business sentiment easing to the weakest since May last year. The latest reading contributed to the lowest quarterly average seen since Q1 2015. Mirroring the trend for business activity, new orders at Japanese service firms stagnated in March. This followed an 11-month period of expansion.

A contraction in manufacturing output was reflected in the composite index. A number of panelists commented on retirements leading to the fall in employment. Moreover, the rate of job shedding was sharper than the survey average. Goods producers hired workers at the weakest rate in the current six-month sequence of job creation.

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.