The Japan flash manufacturing PMI headline index fell to 52.0 in May from 52.7 in April (revised from a flash estimate of 52.8). If confirmed by final data to be released early next month, this will indicate that activity in the Japanese manufacturing sector has expanded for a ninth consecutive month but at the weakest pace since November.
This drop in the headline index reflects a similar decline in the survey's output index, down from 53.4 to 52.9, the lowest level in six months. Survey respondents also reported slower - though still positive - growth in new orders, new export orders and employment in May. In addition, the survey indicates that price pressures have moderated since the start of the month, with both input costs and selling prices reported to have increased at a slower pace than in April.
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.