TOKYO, Sept 1 - Manufacturing activity in Japan expanded at its fastest pace in more than a year last month as the global economy picked up and the effect of the deadly SARS virus receded, a survey released on Monday showed. The headline index in the /Nomura/JMMA Purchasing Managers survey rose to 52.5 in August, its highest in 13 months and up from 51.1 in July.
A reading above 50 in the purchasing managers index (PMI), which gives an early snapshot of manufacturing activity, suggests an expansion, while a figure below it indicates contraction. With the PMI above 50 for the third straight month, the upswing appeared to be taking root and the survey showed that companies were hiring more workers for the first time since May 2002 as order books bulged despite increased output. "Almost 30 percent of manufacturers reported that their new business was up on the same point one month ago, with the rise generally attributed to improving business and consumer confidence," the PMI report said. "The end of the SARS (Severe Acute Respiratory Syndrome) crisis and signs of global economic improvement were the two significant factors behind rising sentiment." The PMI numbers dovetailed with government data released on Friday showing industrial output had risen 0.5 percent in July from June, outpacing a consensus forecast for a 0.2 percent gain. The output index in the PMI survey rose to 53.5 in August from 52.8 to hit a one-year high.
"Although a number of companies reported that their production had been stepped up in order to rebuild their stock levels, the majority reported that the increase in their production levels simply reflected efforts to satisfy strengthening growth of new business," the report said.
NEW BUSINESS
The new orders index rose to 54.8 in August, its highest in 13 months, from 52.2 in July. Export orders rose to 51.5 from 51.4. While the gain was minimal, the index was at its highest in a year and contrasted with readings below 50 -- suggesting contraction -- in the first five months of the year. Asian markets were the principal source of new business, while sales to the United States stayed patchy. Backlog rose despite the higher production, with the backlog index hitting 51.6, the first reading above 50 in 13 months. "In response to the recent robust expansion of new business, Japanese manufacturers took on additional staff in August," the report said. "Although only marginal, the rise... reflected expectations amongst an increasing number of firms that growth would be sustained into the future." Not everything was bright, with prices components showing continued deflationary pressure.
"Strong competition from both domestic and foreign producers was reported to have prevented all but two percent of companies from raising their factory gate prices, while encouraging 14 percent of firms to cut their rates charged," the report said. The output prices index stood at 43.8 in August, up from 42.6 in July but still well below the 50 mark -- as it has always been since the survey began in October 2001. With pricing power in buyers' hands, the input prices index fell for the fifth month running to 47.7, its lowest this year.//