JP: PMI Composite

Sun Nov 05 18:30:00 CST 2017

Actual Previous
Composite - Level 53.4 51.7
Services - Level 53.4 51.0

The Nikkei Composite Index for Japan rose from 51.7 in September to 53.4 in October, with stronger conditions in the services sector outweighed by slightly weaker conditions in the manufacturing sector. The Business Activity Index for Japan's services sector, also published today, increased in October after falling for three consecutive months, advancing from 51.0 to 53.4. The manufacturing PMI survey, released last week, showed a decline in its headline index from 52.9 in September to 52.8 in October.

The increase in the headline index for the services PMI in October reflects a sharp increase in the survey's measure of new orders, which grew at the fastest pace since May 2013. Respondents to the manufacturing sector survey, in contrast, reported slightly slower growth in new orders in October. The two surveys also showed a divergence in employment growth and expectations about the twelve-month outlook for activity, with service sector firms reporting slightly weaker payroll gains but more confidence about the outlook and manufacturers reporting slightly stronger jobs growth but less confidence about the outlook.

Service sector input costs and selling prices were reported to have risen in October, the former at a pace slightly faster than in September, the latter at a slightly slower pace. Manufacturers reported input costs grew at a slightly faster pace in October and at their fastest pace in six months, with selling prices reported to have been raised at a pace matching the fastest since November 2014.

Today's data shows that conditions in the manufacturing and service sectors have continued to diverge in October, though reversing the trends seen in recent months. The service sector headline index rose sharply after three consecutive months of falling, while the manufacturing headline index fell modestly after increasing in each of the two prior months. Despite the small fall in the manufacturing index, however, overall conditions remain strong, with the composite index matching its highest level in nearly four years. This is broadly consistent with the Bank of Japan's assessment that the Japanese economy is "expanding moderately" and will continue to do so, suggesting that officials will likely 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.