JP: PMI Manufacturing Index

Wed Jan 31 18:30:00 CST 2018

Actual Previous
Manufacturing - Level 54.8 54.0

The Nikkei Manufacturing PMI headline index increased to 54.8 in January, above the flash estimate of 54.4 and confirming an increase from 54.0 in December. This is the highest reading for this index since February 2014 and extends the strong upward trend seen mid-2017.

The increase in the headline index reflects a reported further acceleration in output growth, with growth in new orders also picking up to a four-year high. Strong demand from China and elsewhere in the region also pushed up the survey's measure of new export orders to its highest level since 2010. Respondents reported employment grew in January at the fastest pace since last February and also expressed greater confidence about the twelve-month outlook.

Today's survey indicates that price pressures are continuing to build in Japan, broadly consistent with the recent upward trend in underlying CPI inflation and the forecasts of officials at the Bank of Japan. Respondents reported further increases in input costs in January, largely driven buy higher global oil prices. Firms also continue to pass on these higher costs onto consumers, with the survey's measure of growth in selling prices at tis highest level since October 2008.

The improvement in manufacturing conditions indicated by the PMI survey contrasts with official forecasts for industrial production growth in January, published earlier in the week. Industrial production rose 2.7 percent on the month in December, but officials expect this will be followed by a decline of 4.3 percent on the month in January before rebounding with an increase of 5.7 percent in February.

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.