JP: PMI Composite

Thu Jan 04 18:30:00 CST 2018

Actual Previous
Composite - Level 52.2 52.2
Services - Level 51.1 51.2

The Nikkei Composite Index for Japan was unchanged at 52.2 in December, with slightly weaker conditions in the services sector offset by a modest improvement in manufacturing conditions. The Business Activity Index for Japan's services sector, also published today, fell from 51.2 in November to 51.1 in December, while the manufacturing PMI survey, released last week, showed an increase in its headline index from 53.6 to 54.0.

The decline in the headline index for the services PMI in October reflected a fall in the survey's measure of new orders to its lowest level since September 2016. Survey respondents, however, remain confident about the outlook, with the survey's measure of business optimism picking up for a fourth consecutive month to its highest level since May. Employment in the services sector was also reported to have increased at the fastest pace in six months in December. The manufacturing survey also showed stronger new orders but slightly weaker employment growth and business confidence in December.

Service sector respondents reported further gains in input costs in December as well as an increased ability to pass these costs on to consumers, with selling prices reported to have been increased at the fastest pace in more than two years. Manufacturers also reported further increases in input costs and selling prices in December.

Japan's PMI surveys continued to show a divergence in the headline index for the manufacturing and services sectors in December, with manufacturers reporting very strong conditions towards the end of 2017 but service sector firms reporting only modest growth. Firms across both sectors, however, report relatively strong sentiment about the outlook and both surveys suggest that price pressures are building in line with official inflation data.

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.