Expansion in Japanese manufacturing activity sped up in March for the first time in four months as business confidence improved at home and overseas, a survey showed on Wednesday. But factories once again lagged behind demand, reflected in a rise in unfilled work orders and higher prices for raw materials, especially steel, due to supply shortages. The headline figure in the /Nomura/JMMA Purchasing Managers Index (PMI) was 55.3, up from 54.6 in February and the first rise in the pace of growth since November. It was the 10th straight month of expansion. A reading above 50 in the PMI, which gives an early snapshot of manufacturing activity, suggests an expansion. A figure below it indicates a contraction.
"Companies reported strengthened demand from the U.S., Europe and particularly Asia, attributed to improved economic growth and recovering business confidence in key export markets," said the PMI report, based on responses from more than 350 manufacturers. The catalyst for increased activity was further growth in output and new orders. The output index in the PMI survey rose to 57.9 in March from 56.8, while the new orders index, a barometer of future demand, climbed to 58.4 from 57.6. Both were above 50 for the 10th month in a row. The rosy PMI numbers dovetail with the Japanese government's assessment on Tuesday that industrial output was recovering, despite production falling 3.7 percent in February from a month earlier.
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Despite cranking up production, firms could not catch up with sales. A symptom of this was the backlog of work rising for an eighth successive month and suppliers' delivery times lengthening for a 14th month. "Manufacturers attributed supplier delays to the recent strength of global demand for key raw materials and components. Supply problems were particularly reported for steel products," the report said. The delivery times index checked in at 41.6 versus 44.2 in February, while the backlog of work index was 54.6 against 54.4. A consequence of supply shortfalls was a spike up in input prices, with the related index climbing to a record 62.8 from 57.9. At the other end of the assembly line, prices of finished goods kept falling, though at the slowest pace on record. The output prices index was 48.0 versus 46.3. "Although signalling a continuation to the trend of falling output prices... the rate of decline was the weakest since the survey began in October 2001," it said.
That corresponds with recent data showing that Japan may be making some headway in its fight against deflation, with the core consumer price index flat in February from a year earlier. Faced with diminishing profits, companies cut more jobs in March, resulting in the employment index recording 47.8 after marking 48.6 in February. "Job losses in March were commonly linked to the need to raise productivity and cut costs in order to remain competitive," the report said.///