JP: PMI Composite

Mon Dec 04 18:30:00 CST 2017

Actual Previous
Composite - Level 52.2 53.4
Services - Level 51.2 53.4

The Nikkei Composite Index for Japan dropped from 53.4 in October to 52.2 in November, with weaker conditions in the services sector outweighing an improvement in manufacturing conditions. The Business Activity Index for Japan's services sector, also published today, declined from 53.4 in October to 51.2 in November, in contrast to the manufacturing PMI survey, released last week, which showed a solid increase in its headline index from 52.8 to 53.6.

The decline in the headline index for the services PMI in October took place despite relatively strong new orders reported by survey respondents, with the survey's measure of business optimism about the twelve month outlook also picking up to a six-month high. Employment growth in the services sector, however, was reported to have weakened to zero change in payrolls in November. The manufacturing survey showed strong new orders and faster employment growth in November.

Service sector input costs and selling prices were reported to have risen at a faster pace in November, the former at the fastest pace since 2008 and the latter at the fastest pace in more than two years. Higher labour expenses were cited as the main factor contributing to this increase in cost pressures. Manufacturers also reported stronger increases in input costs and selling prices in November.

Similar to the trend seen in recent months, the PMI surveys showed a divergence in the headline index for the manufacturing and services sectors in November. Conditions, however, remain relatively strong in both sectors, with the headline index for the service sector survey falling from a 26-month high the previous month and new orders still reported at robust levels. Both surveys also show that price pressures strengthened in November, suggesting that the recent gradual upward trend in core inflation will continue in 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.