JP: PMI Composite

February 2, 2017 06:30 CST

Actual Previous
Composite - Level 52.3 52.8
Services - Level 51.9 52.3

The Nikkei Composite Index for Japan fell from 52.8 in December to 52.3 in January. The Business Activity Index for Japan's services sector, also published today, dropped from 52.3 to 51.9. This follows an increase in the headline index for the manufacturing PMI, published earlier this week, from 52.4 to 52.7.

Service sector respondents reported new orders rose in January at the same pace they did in December , which was the fastest pace since July 2015. Similar to the manufacturing survey, the services survey showed respondents were also confident about prospects over the next twelve months, with business sentiment at a nine-month high. Both surveys also indicate solid job growth in January, with service sector respondents reporting the fastest growth in payrolls in thirteen months.

Today's survey also shows some evidence of stronger price pressures in the Japanese economy. Like manufacturers, service sector respondents reported higher input costs - including raw materials, fuel and wages - in January, resulting in small increase in selling prices.

Despite the drop in the headline index, today's report suggests that Japan's services sector, like its manufacturing sector, enjoyed a solid start to 2017, with strong growth in new orders and employment. Officials at the Bank of Japan will also likely be encouraged by the two surveys' evidence that price pressures have picked up in recent months, consistent with their forecast for headline CPI to strengthen over the coming year.

The Markit Japan Composite Purchasing Managers Index (PMI) is based on original survey data collected from a representative panel of companies based in the Japanese manufacturing and service sectors. The Composite PM is a weighted average of the Manufacturing Output Index and the Services Business Activity Index, and is based on original survey data collected from a representative panel of over 800 companies based in the Japanese manufacturing and service sectors. Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month.

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.