JP: PMI Manufacturing Index

Wed Jan 03 18:30:00 CST 2018

Actual Previous
Manufacturing - Level 54.0 53.6

The Nikkei Manufacturing PMI headline index increased to 54.0 in December, below the flash estimate of 54.2 but confirming an increase from 53.6 in November. This is the highest reading for this index since February 2014 and indicates that the manufacturing sector will have made a solid contribution to economic growth in the three months to December.

The increase in the headline index reflects further momentum in output growth, which was at a near four-year high in December and in positive territory for a fifth consecutive month. Respondents also reported new orders grew at their fastest pace since early 2014, with improved demand from China and Taiwan also boosting new export orders. The survey's measures of business confidence and employment also remained positive but moderated from the levels recorded in November.

Today's survey shows further acceleration in price pressures in Japan, broadly consistent with the recent upward trend in underlying CPI inflation. Respondents reported a sharp increases in input costs in December, citing the impact of the weaker domestic currency and higher oil prices. Firms also continue to pass on these higher costs onto consumers, with the survey's measure of growth in selling prices in positive territory for the twelfth consecutive month, the first time this has happened since 2008.

The improvement in manufacturing conditions indicated by the PMI survey is consistent with official forecasts for industrial production growth in December, published last week. Industrial production rose 0.6 percent on the month in November, and officials expect this will be followed by an increase of 3.4 percent on the month in December before a fall of 4.5 percent in January.

The Purchasing Managers' Manufacturing Index (PMI) is based on monthly questionnaire surveys of selected companies which provide an advance indication of what is really happening in the private sector economy by tracking changes in variables such as output, new orders, stock levels, employment and prices across the manufacturing sectors.

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.