The Japanese manufacturing sector showed no signs of improving mid-way through the second of the quarter of 2016, as both production and new orders declined at sharper rates. According to panellists, the aftermath of the earthquakes in one of Japan’s key manufacturing regions continued to weigh heavily on the goods producing sector.
Also contributing to the marked fall in total new orders was a sharp contraction in international demand. As a result, manufacturers cut back on input buying for the third month running. Employment, on the other hand, remained in growth territory, albeit at a slower pace. On the price front, cost burdens reduced further due to a fall in raw material prices, leading to a decrease in charges for the sixth consecutive month.
The headline PMI posted at 47.7 in May, down from 48.2 in April, signalling a sharper rate of deterioration in the Japanese manufacturing sector. In fact, the latest figure was the lowest since January 2013. This reflected sharper contractions in output, new orders and stocks of purchases. Production at Japanese goods producers decreased at the quickest rate since April 2014 in May. According to panellists, the earthquakes had a detrimental effect on output. Other surveyed
companies mentioned reduced international demand leading to a slump in production.
A sharp decline in output was matched by a marked fall in new orders. Total new orders contracted at the fastest pace in 41 months, with many firms blaming the earthquakes. Data also suggested that a fall in foreign demand contributed to the decline in total sales, as new export orders fell at the sharpest rate since January 2013.
Despite worsening operating conditions, manufacturers hired additional staff. However, the rate of job creation eased from April’s three-month record to one that was slower than the average over the eight-month sequence of expansion. The stronger yen/US dollar rate helped to reduce imported raw material costs leading to a decline in input prices. Subsequently, goods producers decreased their charges. Panellists also mentioned increased competition and price negotiations with
clients as factors driving down selling prices.