June 29, 2008 / 11:16 PM / 11 years ago

Japan manufacturing activity hits 6-yr low -survey

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TOKYO, June 30 (Reuters) - Manufacturing activity in Japan fell to the lowest level in more than six years in June as uncertainty over the economic outlook made firms cautious and reluctant to spend, a survey showed on Monday.

The Nomura/JMMA Japan Purchasing Managers Index, which gives an early snapshot of the health of manufacturing, declined to a seasonally adjusted 46.5 in June from 47.7 in May. That was the lowest since February 2002.

A reading below 50 points to a contraction, while a figure above suggests expansion.

The PMI, based on responses from more than 400 manufacturers, was below the 50 threshold for the fourth straight month.

Manufacturers’ output levels dropped due to a decrease in new orders from companies that are cutting back on spending in an air of economic uncertainty.

“The Japanese manufacturing economy continued to lose steam at the end of the second quarter, as cost pressures put brakes on the sector,” Paul Smith, senior economist at Markit, wrote in the report.

The PMI output index, which approximates industrial production, dropped to 44.4 in June from 46.3 in May, declining for the fourth consecutive month. The drop was especially evident in Japan’s traditional stronghold — the electrical and electronics sector, the report said.

The survey also showed new orders fell to 42.0 in June from 44.6 the previous month, reflecting a decrease in domestic demand.

“Companies reported that price pressures were leading clients to pare back spending, the net result being a sharp drop off in incoming new business since the previous month,” said Smith. In comparison, input prices, the manufacturers’ procurement costs, jumped to 75.9 in June, up 1.3 points from May and at the second-highest rate in the survey’s history.

Of the firms that responded to the PMI poll, 17 percent reported charging their clients more on average in response to the increasing price of petroleum and other raw materials.

Japanese manufacturers’ new export orders index rose slightly to 45.7 from 45.0 last month, but the report said that demand from China and the United States, Japan’s key export destinations, were relatively subdued.

Japan’s exports rose 3.7 percent in May from a year earlier, but shipments to the United States fell 9.5 percent. [JPTBAL=ECI] A lack of new orders also forced manufacturers to cut back on their backlogs.

Despite such negative conditions, the manufacturing industry continued to hire more employees, the PMI survey showed.

The employment index stood at 50.6 in June, unchanged from the previous month.

Smith, however, remained cautious about the outlook.

“With output, new orders and backlogs all down markedly, it seems inevitable that employment will eventually suffer going forward,” he said in the report. (Reporting by Mari Saito; Editing by Chris Gallagher)

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