Japan Orders and Output Decline Second Month; Does it Mean Anything?

Orders and output in Japan contracted for the second month. However, the decline was small and it comes on the heels of a tax increase that shifted demand forward a couple months ago.

Markit reports Slower Decline in Japanese Manufacturing Output in May

Key Points:

• Output and new orders fall for the second month running, but at slower pace
• Exports continue to fall
• Rate of job creation eases

Summary: 

Japanese manufacturing firms saw a decline in output for the second month running in May alongside a con tinued fall in new orders and new export orders. That said, rates of decline for both new orders and output eased from those seen in April. Employment numbers grew in May for the tenth month running, albeit at a slower pace. The headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index™ (PMI™) – a composite indicator designed to provide a single - figure snapshot of the performance of the manufacturing economy – posted at 49.9 in May, up from 49.4 in April. This signalled a broad stabilisation in business conditions in the sector, following the decline in April.

Output fell for the second month running in May. Similar to April, panellists commented on a decline in demand due to the sales tax increase. That said, the deterioration in output eased in comparison to the previous month. Following a similar trend, new orders continued to fall with panellists again blaming the sales tax rise. However, the decline in new orders was only slight and weaker than in the previous month, with the seasonally adj usted New Orders Index moving closer to the 50.0 no - change mark. Alongside the falls in output and new orders was also a reduction in new export business. 

May recorded the fastest fall in work outstanding since July 2013. Japanese manufacturing companies attributed this to a drop in business after the increase in sales tax. Despite falls in output and new orders, Japanese manufacturers in May saw employment growth for the tenth month running as companies took on extra staff in anticipation of workload growth. That said, the rate of job creation eased to the slowest since last November.

Too Early To Tell 

The positive aspect in the report is the strength in jobs, yet job growth has slowed. The weak aspect is declining exports which cannot be blamed on a sales tax hike.

Moreover, the Yen has been fairly stable recently so one cannot blame the drop in exports on a strengthening currency.

All things considered, the report is somewhat a mixed bag. It will take another month or two to assess Japan properly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com