May 30, 2007 / 11:36 PM / 13 years ago

Japan May manufacturers PMI falls on slower output

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TOKYO, May 31 (Reuters) - Manufacturing activity in Japan declined in May due in part to slower growth in output and a near-zero rise in new orders, a survey showed on Thursday.

The NTC Research/Nomura/JMMA Purchasing Managers Index, which gives an early snapshot of the health of manufacturing, fell to a seasonally adjusted 51.4 in May from 52.3 in April, the weakest rate of growth since January 2005.

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

The PMI, compiled from a string of diffusion indexes and based on responses from more than 350 manufacturers, declined for the fourth consecutive month.

“Soft domestic demand weighed on the Japanese manufacturing sector in May, depressing total new order gains,” said Paul Smith, an economist at NTC Research.

The PMI’s new orders index, a barometer of future demand that combines goods orders from both home and abroad, stood at 50.1, the lowest level December 2004, when it was 49.4.

A report on the survey said slack domestic demand largely erased growth in export sales. The basic metals and food and drink sectors showed noticeable declines in new orders, it said.

The output index, which approximates industrial production, declined to 52.0 in May from 54.2 in April partly due to weak growth in new orders. Although output increased for the 29th consecutive month in May, the index slipped to the lowest level since January 2005.

Government data showed on Wednesday that Japan’s industrial production unexpectedly fell in April from the previous month, with economists pointing to continuing inventory adjustments in the electronics devices sector and slowing exports to the United States as major reasons behind the output decline.

RAISING PRICES

The output prices index, which gauges prices that manufacturers charge for their products, rose above the 50 mark for the first time in four months in May. The index hit 51.1, the highest reading this year.

The report said steep increases in procurement costs had led companies to protect their margins. The biggest rises in output prices were seen in the chemicals and plastics and food and drink sectors, it said.

The input prices index, which gauges manufacturer’s procurement costs, rose 63.1 in May from 62.3 in April, with the survey’s respondents noting rising raw material costs.

“These kinds of price developments are essential if inflation on the CPI (consumer price index) measure is eventually going to gain any real traction,” Smith said.

Government data showed last week that core CPI, excluding fresh food prices, fell 0.1 percent in April from a year earlier, the third straight month of year-on-year declines. But it slowed from a 0.3 percent fall in March.

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