JP: PMI Composite

Tue Jul 04 19:30:00 CDT 2017

Actual Previous
Composite - Level 52.9 53.4
Services - Level 53.3 53.0

The Nikkei Composite Index for Japan fell from 53.4 in May to 52.9 in June, with weaker conditions in the manufacturing sector outweighing an improvement in service sector conditions. The Business Activity Index for Japan's services sector, also published today, advanced from 53.0 to 53.3, its highest level in 22 months, while the manufacturing PMI survey, released earlier in the week, showed a fall in its headline index from 53.1 in May to 52.4 in June.

The increase in the headline index for the services PMI was largely driven by a continued growth in new business, with the survey showing new orders in positive territory for the eleventh consecutive month. Respondents also remain confident about the twelve-month outlook, with this confidence reflected in the survey's measure of employment growth picking up to its highest level since May 2013. Respondents to the manufacturing survey also reported solid job gains in June, resulting in the strongest composite measure of employment growth since the survey started collecting data on this in 2007.

Service sector respondents reported input costs rose in June at the fastest pace since February, with selling prices also increased modestly. The manufacturing survey also showed gains in input costs and selling prices in June.

Today's data indicate that conditions in Japan's private sector remained strong in June, despite the moderation in manufacturing activity, with both surveys showing strong job growth and further gains in selling prices. With the composite index averaging 53.0 in the three months to June, up from the average of 52.5 in the three months to March, the PMI surveys suggest Japan's economy should post solid growth in the quarter just ended This is 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.