1 May 2003, 09:20  Japan PMI above 50 in April, first time in 8 months

TOKYO, May 1 - Japan's manufacturing sector expanded for the first time in eight months in April, with output and order books suggesting a tentative return to growth, a survey showed on Thursday. Despite mounting worries about a global slowdown, the SARS outbreak and a fall in Tokyo share prices to 20-year lows, the overall index in the /Nomura/JMMA Purchasing Managers survey rose to 50.1 in April from 48.9 a month earlier. The purchasing managers index (PMI), which gives an early snapshot of trends in manufacturing activity, was up for the third straight month. A reading above 50 suggests an expansion in manufacturing activity, while figures below that threshold suggest a contraction.
"The rate of increase remained below that seen throughout much of last year but was nevertheless significant as it reflected a strengthening of order books for the first time since last August," the PMI report said. The PMI report cited a return to growth in order books and output as the main reasons behind the pick-up in the overall PMI. The output index rose to 51.0 in April after hovering below 50 for three months. "Output rose in line with a strengthening of new orders and the launching of new products. Growth of production was most commonly reported in the food/drink, metal goods, mechanical engineering and chemicals/plastics sector," the report said. The new orders index rose to 50.3 in April, the first reading above 50 since last August, driven by domestic demand, but the report warned against over-optimism.
OUTLOOK UNCERTAIN
"Despite the overall increase in new orders reported during the month, a further fall in the amount of outstanding work suggested that order books remain weak and that current operating capacity is only being sustained through reductions in backlogs of work," it said. "Backlogs have now fallen for nine consecutive months, dropping at an increased rate in April." The figures come on the heels of the government's industrial output figures for March released on Wednesday, which showed production fell 0.2 percent from February, defying economists' forecasts of a slight increase. Some economists said the perky PMI results should be taken with a pinch of salt as the survey was conducted in mid-April, when worries about Severe Acute Respiratory Syndrome (SARS) were still confined largely to the travel and airline industries. "In the manufacturing sector, the impact from SARS was probably not being felt as much as it may be now," said Mamoru Yamazaki, chief economist at Barclays Capital (Japan). Behind the economists' concern was uncertainty over exports, with worries about the impact of SARS on Asian economies swiftly replacing concern about the fallout from the U.S.-led war in Iraq.
The export orders index stood below 50 for the seventh time in the last eight months, although it rose to 49.5 in March from 48.2 a month earlier. The report said export orders were supported by demand from Asian countries -- particularly China, Taiwan and South Korea -- while demand from the United States and Europe was generally more subdued, though less so than in March. Indices for output prices and input prices showed some divergence due to a rise in oil prices in an otherwise deflationary economic environment that prevented manufacturers from passing higher costs on to customers. The input prices index stood at 51.5 -- above 50 for the second month running -- while the output prices index fell to 41.0, the lowest level since last July. "The combination of increased costs and falling output prices suggests further downward pressure on manufacturers? profit margins," the PMI report said.///

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