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Index >> Economy >> Reuters/Nomura/JMMA Purchasing Managers' Index Forecasts Japan's Q1 GDP growth set to be only slightly weaker than Q4
Reuters/Nomura/JMMA Purchasing Managers' Index Forecasts Japan's Q1 GDP growth set to be only slightly weaker than Q4
Manufacturing output growth picks up in March
The Reuters/Nomura/JMMA monthly Purchasing Managers' Index survey provides the first indication of business conditions each month. The Output Index from the survey rose for the first time in four months in March, signalling an expansion of manufacturing production for the tenth month running and an improvement in the rate of growth. The PMI survey has so far had a good track record of accurately anticipating government (METI) data on manufacturing output, although the latter is more volatile (see top chart). The recent survey data are roughly consistent with just over 1% month-on-month growth of manufacturing output, as recorded by METI, suggesting a sustained strong rate of economic recovery in the manufacturing sector throughout Q1 2004.PMI points to Q1 GDP growth only slightly slower than the 1.6% increase recorded in Q4
The composite PMI ¨C which is derived from several survey indicators including output, order books and employment ¨C acts as a useful guide to growth of the Japanese economy as a whole. GDP rose by 1.6% on the previous quarter in Q4, and the PMI data for January to March suggest that growth will have slowed from this strong rate in Q1, but only very slightly (see second chart on left). The PMI in fact averaged 56.0 in Q4 and 55.2 in Q1. When a PMI reading of approximately 45.5 appears to be consistent with zero growth in the economy as a whole, this suggests a buoyant rate of economic expansion. Employment outlook remains bleak
On a more pessimistic note, the March PMI survey pointed to an increased rate of job losses in the manufacturing sector. Reduced headcounts were caused by fears over rising raw material costs and the need to stay competitive in the face of the still strong yen. The third chart plots the PMI survey indexes for input prices and suppliers' delivery times. The latter indicates the build up of capacity constraints in the supply chain. Any reading below 50.0 signals longer delivery times. With the delivery times index inverted in the chart, it becomes clear that a survey record rate of input cost inflation in March was associated with growing shortages of inputs. Steel and emiconductors were most commonly reported, although many other raw materials were becoming increasingly difficult to source for prompt delivery. With price pressures squeezing manufacturers' profit margins, the outlook for employment in the sector remains bleak.
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