TOKYO, June 2 - Manufacturing activity in Japan contracted in May, according to a survey on Monday, suggesting that a pickup in April was a blip and that the overall trend is still down. The /Nomura/JMMA Purchasing Managers survey showed that its overall index fell to 49.0 in May, slipping below the 50 mark after rising above that threshold for the first time in eight months in April, when it stood at 50.1. A reading above 50 in the purchasing managers index (PMI), which gives an early snapshot of manufacturing activity, suggests an expansion in manufacturing activity, while a figure below it suggests a contraction. "The decline (in May) was only modest but nevertheless indicated that the production of manufactured goods has resumed a downward trend after a temporary boost seen in the immediate aftermath of the Iraq war," the PMI report said. The report cited a return to contraction in order books and output as the main reasons for the slippage in the overall PMI.
The output index fell to 49.4 in May from 51.0 in April, while the new orders index fell to 48.7 from 50.3. "Output was reduced mainly in response to signs that global demand had failed to bounce back after the Iraq war," the report said. "The downturn was broad-based with the exception of food and drink manufacturing, which was the only sector to report any significant growth of production." The figures come on the heels of industrial output figures released by the government on Thursday, which showed production in April fell 1.2 percent from March.
EXPORT CONCERN
The outlook was further dimmed by weakness in exports, with worries about the impact of Severe Acute Respiratory Syndrome (SARS) on Asian economies and the yen's strength against the dollar swiftly replacing concern about the U.S.-led war in Iraq. The export orders index stood below 50 for the eighth time in the last nine months, falling to 48.6 in May from 49.5 in April.
"Exporters blamed weak business confidence in overseas markets as well as the SARS crisis for the latest downturn in demand," the PMI report said. 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 on higher costs to customers. The input prices index stood at 51.2 -- above 50 for the third month running -- while the output prices index was at 41.2, below 50 as in every month since the survey began two years ago. "The combination of rising input prices and falling output prices suggests a squeeze on profit margins," the report said.//www.reutres.com