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TOKYO, March 31 (Reuters) - Manufacturing activity in Japan contracted for the first time in five months, reflecting sluggish demand and a fall in output, a survey showed on Monday.
The NTC Research/Nomura/JMMA Purchasing Managers Index, which gives an early snapshot of the health of manufacturing, declined to a seasonally adjusted 49.5 in March from 50.8 in February.
In the PMI, compiled from a string of diffusion indexes and based on responses from more than 350 manufacturers, a reading above 50 suggests expansion, while a figure below points to a contraction.
“The latest survey painted a rather bleak picture, with both output and new orders contracting concurrently for the first time in five months,” said Paul Smith, economist at NTC Research.
The PMI’s output index, which approximates industrial production, declined to 48.5 in March from 50.9 in the previous month, falling below the 50 threshold for the first time in five months.
Respondents to the survey pointed to weakness in incoming new orders as a major reason behind the decline in output, a report on the survey said.
The sluggishness in output was most conspicuous in the electrical and electronics as well as the timber and paper sectors, the report said.
The new orders index, a barometer of future demand that combines goods orders from both home and abroad, slipped to 47.2 from 50.4 in February, hitting the lowest level since July last year.
The new export orders index stood at 47.9, down from 49.5 in February, marking the second consecutive month of contraction. Many respondents said demand from the United States and, to a lesser extent, Southeast Asia, was slackening, the report said.
Government data showed last week that Japan’s exports rose 8.7 percent in February from a year earlier, a little more than the market’s consensus forecast, as solid shipments of Japanese goods to Asia and Europe insulated the impact from slowing exports to the United States. [JPTBAL=ECI]
Analysts said, however, that the yen’s sharp rise against the dollar this month and heightening worries over the credit crunch ensuing from the U.S. subprime woes could take a toll on exports in the coming months.
Manufacturers in the PMI survey also said they were hit by a sharp rise in raw material prices, bringing the input prices index, which gauges manufacturers’ procurement costs, to a survey high for the second straight month.
The input prices index stood at 73.3 in March, up from 72.9 in February.
The rise in input costs prompted companies to raise prices on their products. The output prices index rose to 53.4 from 52.8 in February, also hitting a survey high.
Still, the output prices index remained far below that of input prices as the report said competitive pressures restricted companies’ pricing power.
Despite the deteriorating business conditions, the respondents continue to hire more, although the rate of expansion was marginal.
The employment index stood at 50.5, up from 50.1 from February.
But government data showed last week that Japan’s seasonally adjusted unemployment rate edged up to 3.9 percent in February from 3.8 percent in January. [JPUNR=ECI] (Reporting by Yuzo Saeki; Editing by Chris Gallagher)