Manufacturing Economy Index in Japan Shows Strong Growth

The Japan Supply Management Association recently reported that the manufacturing economy index climbed by 1.3 points to reach 54, which is the highest level recorded since May 2022. This figure surpassed even the most optimistic expectations in an Econoday survey, where the median forecast was 53.4%.

Additionally, the new orders index, a crucial measure of demand, increased for the fifth month in a row, rising by 2.7 points to hit 54.3% in May. The production index also saw a modest increase, gaining nine-tenths of a point to reach 54.3%, marking the seventh consecutive month of production growth. A Purchasing Managers Index (PMI) above 50 suggests that manufacturing is expanding, while numbers above 47 typically indicate overall economic growth.

While the employment index went up by 2.2 percentage points, it continued its trend of contraction. Roughly half of the companies surveyed indicated they were hiring, while the other half mentioned workforce management.

In May, almost every sector within U.S. manufacturing showed growth, with the ISM noting that 16 out of the 17 subsectors they monitor reported increases, including areas like printing, textiles, and consumer electronics. The only area that didn’t expand was wood products.

Even though the price index has fallen since April, it still reflects an ongoing rise in raw material costs.

Imports and exports saw growth in May as well. The ISM’s inventory index reached its highest point in a year, possibly suggesting that companies are stockpiling in response to concerns about potential supply chain disruptions related to the conflict with Iran.

Separately, S&P Global indicated that its manufacturing sector index also demonstrated “rapid and strong improvement” in May, with new orders and production reaching the highest levels since October 2022. However, they cautioned that this uptick in activity may be linked to stockpiling efforts.

“At first glance, manufacturing seems to be performing well, but when you dig deeper, things aren’t as straightforward,” noted Chris Williamson from S&P Global. “The headline PMI reached a four-year peak, and factory production showed robust growth for the second month running, bolstered by a significant rise in orders. But businesses are building up inventory as they remain concerned about rising costs and supply challenges since the onset of conflicts in the Middle East.”

S&P Global also noted that manufacturing input costs have surged at an unprecedented rate over the last four years, and supplier delivery times have worsened significantly since August 2022.

Interestingly, S&P Global’s data, unlike that of the ISM, indicates that hiring has reached its highest level in five months, with job creation described as “slight.”