JP: PMI Composite

June 4, 2017 07:30 CDT

Actual Previous
Composite - Level 53.4 52.6
Services - Level 53.0 52.2

The Nikkei Composite Index for Japan rose from 52.6 in April to 53.4 in May. The Business Activity Index for Japan's services sector, also published today, advanced from 52.2 to 53.0. The services survey index is now at its highest level since August 2015 and has indicated expansion in the sector for eight consecutive months. The manufacturing PMI survey released last week showed an increase in its headline index from 52.7 in April to 53.1 in May.

The increase in the headline index for the services PMI was largely driven by a strong pick-up in new business, with the survey showing growth at a four-year high. Respondents were also increasingly confident about the twelve-month outlook in May, with the survey's measure of business sentiment at its highest level since it was initiated in mid-2013. This confidence was also reflected in reported job growth in the sector, which also hit a four-year high last month. Respondents to the manufacturing survey also reported strong job gains in May.

Service sector respondents reported input costs rose in May at the fastest pace since February. Margins, however, remain tight with output prices raised only marginally. The manufacturing survey showed a moderation in input cost increases in May and also only marginal increase in selling prices.

Today's data indicate that conditions in Japan's private sector improved significantly in May, with the composite index at a 40-month high, and both surveys showing strong job growth and further gains in selling prices. This suggests that Japan's economy should post solid growth in the current quarter, broadly consistent with the Bank of Japan's view that the economy is set to move from a "moderate recovery trend" to a "moderate expansion" over the near-term.

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.