Japan: Manufacturing Fights Headwinds, Improves Again in October

Econintersect:  While many negatives are being reported in the Japanese economy since the 01 April hike of the consumption tax (up 60%, from 5% to 8%), the manufacturing sector has been pushing higher with the PMI (Purchsing Managers’ Index) moving steadily up and away from the 50 value which marks the boundary between contraction and expansion.  The Flash (preliminary) Manufacturing PMI for October is 52.8, up from 51.7 in September but still below the 53.9 reading in March and before that readings above 55 less than a year ago.

Markit provided the following summary:

Amy Brownbill, Economist at Markit, provided the following comments on the report:

“Latest data indicated robust growth of operating conditions for Japanese manufacturers. New business rose at the highest rate since February and output remained in modest growth territory for the third month in a row. Furthermore, payroll numbers rose fractionally during the month, following a decline in September.

“Given the upcoming decision regarding the second planned increase of sales tax to 10%, questions will turn to the sustainability of the upturn in growth over the coming months.”

Fast FT had this cautionary note:

Nevertheless the readings do not give the impression that the economy is surging back as dampening effect of the tax hike begins to wane, even though factory output figures are often volatile. Japanese industrial production disappointed in August, with production and shipments both falling despite help from renewed weakening in the yen. Industrial output was expected to stabilise but it instead fell 1.5 per cent in August from July, following a 0.4 per cent gain in July.

John Lounsbury

Sources:

• Markit/JMMA Flash Japan Manufacturing PMI™: New order growth surges to highest in eight months (Press release: Markit, 23 October 2014)

• Japanese manufacturing conditions improve (Fast FT, 23 October 2014))