The Japan flash manufacturing PMI headline index fell to 52.6 in March from 53.3 in February (revised from a flash estimate of 53.5). This is the first drop in the index since November, though the index has continued to indicate an expansion in the manufacturing sector for the seventh consecutive month.
This drop in the headline index reflects signs of somewhat slower growth in output, new orders and new export orders so far in March, albeit from relatively strong levels in February. The survey's employment index, was unchanged on the month and continues to suggest growth in manufacturing payrolls. Survey respondents reported further increase in input prices, though at a slower pace, but also reported they had lowered their selling prices, suggesting margins in the sector have compressed.
Today's report indicates that conditions for Japanese manufacturers have remained relatively strong in March, with the headline index, though below the near three-year high records in February, still close to its January level and well above mid-2016 levels. Respondents also continue to report a positive backlog of work orders and optimism about prospects over the next twelve 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. The flash index, usually released about a week before the final, gives a preliminary reading of conditions for the current 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.