JP: PMI Composite

Mon Sep 04 19:30:00 CDT 2017

Actual Previous
Composite - Level 51.9 51.8
Services - Level 51.6 52.0

The Nikkei Composite Index for Japan rose from 51.8 in July to 51.9 in August, with slightly stronger conditions in the manufacturing sector outweighing weaker conditions in the services sector. The Business Activity Index for Japan's services sector, also published today, dropped for a second consecutive month from 52.0 to 51.6, its lowest level since February, while the manufacturing PMI survey, released last week, showed an increase in its headline index from 52.1 in July to 52.2 in August.

The decline in the headline index for the services PMI in July reflects a further moderation in growth in new orders, which increased at weakest pace since April. Respondents to the manufacturing survey reported stronger growth in output and new orders in August. There was also a contrast in the two surveys' measures of business confidence about the twelve month outlook, with the services survey showing weaker sentiment whereas manufacturers reported improved optimism about their prospects. Manufacturers reported improved employment growth in August while the services survey also showed a moderate gain in payrolls.

Service sector input costs and selling prices were reported to have risen in August, the latter at the fastest pace since March. Manufacturers, in contrast, reported weaker growth in both input costs and selling price in August.

Although the PMI surveys show some slowdown in the services sector so far this quarter, this has been partly offset by improved conditions in the manufacturing sector, with the two surveys continuing to indicate moderate expansion in the Japanese economy. These signs of relative stability in economic activity suggests that officials at the Bank of Japan will remain focussed on inflation developments in upcoming policy meetings.

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.