Manufacturing activities gathered pace slightly in July compared to the previous month to post a four-month high expansion on high demand from both domestic and external markets, showed widely-tracked Nikkei purchasing managers’ index (PMI).
PMI inched up to 51.8 points in July against 51.7 in the previous month, indicating a further improvement in overall business conditions across the sector. The reading of PMI above 50 points indicates expansion, while the one below that is contraction. The July number showed marked improvement when compared to near flat manufacturing growth in April this year, when the index had stood at 50.5 points. PMI is based on a survey of some 400 private companies. Official data showed that merchandise exports rose 1.27 per cent in June, for the first time after 18 months of contraction. However, the index of industrial production showed that capital goods output declined for the seventh month in a row in May. July data highlighted ongoing pressure on the capacity of manufacturers, as outstanding business rose for the second month in succession. Furthermore, the rate of backlog accumulation was the fastest in one-and-a-half years.
Our View: Greater demand from both the domestic and external markets and rise in total new business at the fastest pace since March seems to have contributed to the increase in PMI. It signals that the economy is moving forwards and the GDP growth expectations are intact.