Manufacturing Activity in Japan Falls to 6-Year Low


Manufacturing activity in Japan fell in May to the lowest in more than six years largely due to declining output and new orders, according to a survey issued on Friday.

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Japanese manufacturers' clients were cutting down on spending in light of an uncertain economic outlook and rising cost pressures, a report on the survey said.

The NTC Research/Nomura/JMMA Purchasing Managers Index, which gives an early snapshot of the health of manufacturing, declined to a seasonally adjusted 47.7 in May from 48.6 in April.

A reading above 50 suggests expansion, while a figure below points to a contraction.

The PMI, compiled from several diffusion indexes and based on responses from more than 350 manufacturers, was below the 50 threshold for the third straight month.

"The latest PMI data suggests that the punchy growth signaled by official data for Q1 is unlikely to be replicated during Q2," said Paul Smith, an economist at NTC Research.

Japan's gross domestic product grew 0.8 percent in January-March from the previous quarter, preliminary government data showed earlier this month, beating market expectations for a 0.6 percent rise.

The PMI output index, which approximates industrial production, fell to 46.3 in May from 48.2 in April, marking the lowest since February 2002. Production in the timber and paper sector was conspicuously weak, the report said.

"Risks are seemingly skewed to the downside for production going forward," said Smith.

The sluggish output was mainly due to continued weakness in new orders.

The PMI's new orders index, a barometer of future demand that combines goods orders from both home and abroad, edged down to 44.6 in May from 44.7 in April.

New orders were down as the uncertain economic climate and rising input costs in the face of record-high oil prices hit client spending.

The input prices index, which gauges manufacturer's procurement costs, stood at 74.6 in May, the second highest after 76.9 in April.

Overseas demand was weak. New export orders stood at 45.0, staying below the 50-mark for the fourth consecutive month and marking the lowest since November 2001.

Many respondents to the survey cited soft demand in the United States, the report said. Exports declined markedly in the electrical and electronics sectors as well as vehicle manufacturing.

Japan's exports to the United States slipped 9.1 percent in April from a year earlier, government data showed earlier this month, marking the eighth straight month of year-on-year decline.

Japanese manufacturers continue to increase hirings, the PMI survey showed. The employment index stood at 50.6 in May, down from 51.7 in April, but has stayed above the 50 threshold since November 2004.