Edge and Odds

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Edge and Odds

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JAPAN MANUFACTURING PMI DROPS FROM 52.3 TO 50.1

Operating conditions in the Japanese manufacturing sector were broadly stable in February, having improved at a solid rate at the start of 2016. Production growth slowed to the weakest in the current ten-month sequence of expansion, led by a drop in total new orders. Consequently, buying activity increased at a softer
rate. Meanwhile, both input prices and output charges declined.

The headline PMI posted at 50.1 in February, down from 52.3 in January, thereby pointing to a near stabilisation in operating conditions at Japanese manufacturers. Moreover, the latest figure was the lowest in eight months and below the long-run series average.

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Production at Japanese manufacturers increased at a marginal rate in February and one that was slower than the historical average. According to panellists, a fall in demand weighed on output growth. At the sector level, both consumer and intermediate goods producers indicated softer rates of expansion in production, while investment goods producers noted a decline.

Contributing to an easing in production growth was a contraction in total new orders for the first time in eight months. Surveyed companies suggested challenging market conditions had led to a fall in new work intakes. However, the rate of decrease was only marginal overall.

The latest survey data also pointed to a decline in international demand as new export orders contracted for the first time in five months in February. A number of the survey panel commented on global economic instability, while some mentioned reduced trade volumes with China.

Subsequently, the rate of job hiring slowed to the weakest in the current five-month period of expansion. Buying activity growth was also cut back from January’s 23-month peak to only a marginal pace.

Resulting from growth in production and a decline in new orders, pressure on capacity was reduced and backlogs of work were depleted. Moreover, the rate of decline was the sharpest since last September.

On the price front, reports of lower raw material costs, particularly oil- and metal-related items, led to a fall in cost burdens. Concurrently, firms were able to reduce their charges passed on to their clients.

CHINA MANUFACTURING PMI DECLINES TO 48.0

Operating conditions faced by Chinese goods producers continued to deteriorate in February. Output and total new orders both declined at slightly faster rates than at the start of 2016, which in turn contributed to the quickest reduction in staffing levels since January 2009. Lower production was a key factor leading to the steepest fall in stocks of finished goods in nearly four-and-a-half years during February. At the same time, lower intakes of new work enabled firms to marginally reduce their level of work-in-hand for the first time in ten months. Prices data indicated weaker deflationary pressures, with both selling prices and input costs
declining at modest rates.

The seasonally adjusted Purchasing Managers’ Index™ (PMI™) posted at 48.0 in February, down from 48.4 at the start of the year, and its lowest reading for five months. Operating conditions have now worsened in each month for the past year. That said, the rate of deterioration remained modest overall.

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Manufacturing companies in China signalled a further fall in production during February. Though modest overall, the latest reduction was the quickest seen since September 2015. Companies that reported lower output generally cited weak market conditions and reduced intakes of new work. Furthermore, total new business declined for the eighth month in a row, albeit at a modest pace that was similar to January. New export work fell for the third month in a row, albeit at a softer pace.

Staff numbers declined at the sharpest rate since January 2009 during February. Companies that recorded lower headcounts widely commented on company downsizing policies as part of cost-cutting initiatives, along with the non-replacement of voluntary leavers. Despite lower employment, manufacturers were able to work through outstanding business during February. Though marginal, it was the first reduction in the level of work-in-hand since April 2015.

Lower production requirements led Chinese manufacturers to cut their purchasing activity again in February. The rate of reduction was modest overall, despite quickening since the start of the year. Consequently, stocks of inputs declined further, though the rate of depletion was similar to that seen throughout the current eight-month sequence and moderate. Stocks of finished goods also declined in February and at the quickest rate since September 2011. According to panellists, lower output and the delivery of goods to clients had reduced inventory holdings.

Prices charged by Chinese manufacturing firms continued to decline in February. That said, the rate of discounting was the slowest seen in nine months. A number of respondents mentioned cutting their tariffs due to increased competition for new work and to pass on lower input costs to clients. The rate of input cost deflation also slowed in February to the weakest for 18 months.

FYI:

China’s official manufacturing purchasing managers’ index fell to 49 in February from 49.8 in January, equalling its weakest since February 2009 and the seventh straight month of decline. The National Bureau of Statistics, which released the measure, said this was partly due to seasonal effects of the lunar new year holiday, when many factories shut down for extended periods to allow workers to travel to distant hometowns to spend time with their families.

High five “While the Chinese new year may have distorted the [manufacturing] PMI figures in January and February, the average level of the two months still remained at 49.2, below the benchmark level,” said Raymond Yeung and Louis Lam of ANZ Research. “Today’s data suggest that policymakers will take further measures in the upcoming National People’s Congress starting on 5 March in order to achieve a GDP growth target of 6.5-7 per cent in 2016”.

Pointing up The official services sector PMI, which had previously held up better than the manufacturing index in China’s economic slowdown, also slipped last month to 52.7, its weakest level since December 2008. (…)