JP: PMI Composite

Tue Oct 03 19:30:00 CDT 2017

Actual Previous
Composite - Level 51.7 51.9
Services - Level 51.0 51.6

The Nikkei Composite Index for Japan fell from 51.9 in August to 51.7 in September, with stronger conditions in the manufacturing sector outweighed by weaker conditions in the services sector. The Business Activity Index for Japan's services sector, also published today, declined from 51.6 to 51.0, while the manufacturing PMI survey, released earlier in the week, showed an increase in its headline index from 52.2 in August to 52.9 in September.

The decline in the headline index for the services PMI in September is the third consecutive monthly decline and takes the index to its lowest level since February. This reflects a further moderation in growth in new orders, which increased at weakest pace since November 2016. Respondents to the manufacturing survey, in contrast, reported stronger growth in output and new orders in September. Respondents to both surveys, however, reported stronger confidence about the twelve-month outlook for activity. Manufacturers reported somewhat slower employment growth in September while the services survey showed slightly improved but still moderate growth in payrolls.

Service sector input costs and selling prices were reported to have risen in September, the latter at the fastest pace in more than two years, with respondents citing the impact of staff shortages and rising fuel prices. Manufacturers, in contrast, reported input costs grew at their fastest pace in five months but only a moderate increase in selling prices in September.

Today's data shows there has been further divergence between the two sectors in September, with the services PMI now showing conditions have weakened for three consecutive months while the manufacturing survey has shown stronger activity for two months in a row. The net effect, however, has been to keep the composite index at relatively stable levels, while both surveys show that firms remain relatively positive about the near-term outlook. This will likely help keep officials at the Bank of Japan 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.