Japan Output Dips to 16-month Low in August
Japan’s manufacturing output has further declined in August as new business decreased at an accelerated rate, HSBC said.
Backlogs of work fell as a result, while jobs growth eased to nearstagnation. Meanwhile, average costs declined at the sharpest rate since November 2009 and companies continued to lower their average tariffs.
After adjusting for seasonal factors, the headline Markit/JMMA Purchasing Managers’ Index (PMI) posted 47.7 in August, down from 47.9 one month previously, signalling the sharpest worsening of Japanese manufacturing sector operating conditions since April 2011. Moreover, the latest deterioration in business conditions was broadbased across all three market groups.
Japanese manufacturing production declined further in August, with the rate of contraction accelerating to the fastest in 16 months. The latest reduction in factory output was the third in as many months. Where a drop in manufacturing production was recorded, companies mentioned lower levels of new business.
The rate of decline in new work was marked, and broadly unmoved since the month before. New export business fell at a similarly sharp rate, albeit one slower than in July. Anecdotal evidence provided by survey respondents suggested that falling new orders reflected weak demand on global markets, with China and Europe mentioned in particular.
Reflecting falling new orders and corresponding spare capacity, backlogs of work decreased further in August. The rate at which firms depleted work-inhand (but not yet completed) was sharp, and the steepest since May 2009. Meanwhile, latest data showed that staff numbers in the Japanese manufacturing sector were broadly unchanged since the month before.
In line with reduced output requirements, purchasing activity decreased at a solid rate during August. Stocks of purchases declined for the first time in three months as a result, while companies reported a marginal deterioration in supplier performance.
Average input costs faced by Japanese manufacturing firms decreased for a third successive month during August. The rate of decline in purchasing costs was solid, and the steepest in 33 months. Companies commented on reduced prices paid for oil and a range of raw materials.
Largely in response to falling input costs, goods producers in Japan reduced their average tariffs during August. There were also reports of client requests for lower charges and competitive pressures. However, the rate of output price discounting was only modest, and the weakest in four months.
Alex Hamilton, economist at Markit and author of the report said: “The data provide further evidence to suggest that growth in the world’s third largest economy is faltering in the face of weakening global demand conditions. Overall new business declined at a solid rate, while the index measuring trends in factory output fell further over the month.
“There was more deflationary news on the price front, with average input costs and output charges decreasing simultaneously for a third month running. Meanwhile, a muted labour market picture was signalled by the latest survey, with employment stagnating.”