JP: PMI Manufacturing Index

January 31, 2017 06:30 CST

Actual Previous
Manufacturing - Level 52.7 52.4

The Nikkei Manufacturing PMI headline index rose to 52.7 in January, close to the flash estimate of 52.8, and confirming an increase in the index from 52.4 in December. This in the index's highest level since early 2014 and provides further evidence of a solid improvement in manufacturing conditions in recent months.

The survey's production index shows output by manufacturers expanded for the sixth consecutive month in January and at a pace close to the twelve-month high recorded in December. The new orders index and new exports orders index also both increased to their highest levels in around a year, with recent weakness in the domestic currency likely contributing to the increase in external demand. A newly-introduced series tracking survey respondents' expectations about future output shows broad-based confidence in the outlook over the next twelve months, partly reflecting preparations for the Olympic Games in Tokyo in 2020.

Reflecting this increase in new orders and optimism about near-term prospects, survey respondents reported another month of strong job gains in the manufacturing sector, with the survey's employment index little changed from the 32-month high recorded in December. This is broadly consistent with official labour market data released earlier this week showing solid employment growth.

The survey's price data are consistent with officials' views that recent currency depreciation should put strengthen price pressures in Japan. Respondents report that input prices grew at the fastest pace in nearly two years in December and that some of these cost increases were passed on in the form of higher selling prices, which increased at the fastest pace in 14 months.

The Purchasing Managers' Manufacturing Index (PMI) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.

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.