After broadly stabilising in June, business conditions across Japan's manufacturing industry weakened in July. Output slipped back into contraction, while overall new work continued to decline. As a result, purchasing activity fell at a sharper rate and employment growth slowed.
Prices data meanwhile showed a notable easing in the rate of input cost inflation, but selling price inflation accelerated.
The headline S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) fell from 50.1 in June to 48.9 in July, to signal a renewed deterioration in the health of the sector.
Though only marginal, it marked the twelfth time in the past 13 months that operating conditions have weakened. Sub-sector data indicated that business conditions deteriorated across the intermediate and investment goods segments, but strengthened slightly for makers of consumer goods.
A key factor pushing the headline PMI below the neutral 50.0 level was a fresh fall in manufacturing output in July. Production has now fallen in ten of the past 11 months, with the latest reduction the most pronounced since March.
Panel members frequently mentioned cutting output due to lower inflows of new business. Total new orders fell again in July, though the rate of contraction eased slightly from June and was only modest.
Lower production requirements and a further drop in sales led companies to pare back their purchasing activity again in July. Although input buying fell further, supplier performance continued to deteriorate, albeit marginally.
Despite falls in output and new orders, Japanese manufacturers continued to add to their workforce numbers in July. Higher staff numbers and lower sales enabled goods producers to reduce backlogs of work again in July.
Cost pressures eased notably at the start of the third quarter, with the rate of input cost inflation the weakest seen in four-and-a-half years. Manufacturing firms in Japan generally expected output to rise from current levels over the next year.