We just received another sign that the global economy is slowing down

JIJI PRESS / AFP / Getty Images
  • Japan’s manufacturing sector grew modestly in April, helped by strength in domestic demand.
  • New export orders — a lead indicator on global demand — fell for the first time in nearly two years.
  • IHS Markit will release manufacturing and services PMI reports for Europe and the United States later today.

Japan’s manufacturing sector continued to chug along nicely in April, powered by ongoing strength in domestic demand.

However, new export orders fell for the first time in nearly two years, adding to recent evidence that the global economic growth may be slowing.

The Nikkei-IHS Markit Japan “flash” manufacturing Purchasing Managers Index (PMI) rose 0.2 points to 53.1, remaining just below the multi-year highs struck earlier in the year.

This PMI measures perceived changes in activity levels across Japan’s manufacturing sector from one month to the next. Anything above 50 signals that activity levels are improving while a reading below suggests that they’re deteriorating. The distance from 50 indicates how quickly activity levels are expanding or contracting.

The flash reading from IHS Markit, released one week before the final PMI report, is based off around 85-90% of survey responses and is generally a pretty accurate guide as to how the final figure will print.

As seen in the table below from IHS Markit, most of the survey’s subindices improved in April, including output, employment and order backlogs.

Source: IHS Markit

Importantly, the new orders sudindex — a lead indicator on domestic demand — also strengthened, hinting that the improvement in April will likely be sustained in the months ahead.

However, that improvement was largely overridden by weakness in new export orders — a lead indicator on global demand — which fell for the first time since August 2016.

IHS Markit put the decline down to a stronger Japanese yen, rather than a sharp drop in global demand.

However, on top of weaker PMI readings in March, especially for export orders, the result suggests the global economy has lost a bit of momentum in recent months.

Markets will get further clarification on that front later today with IHS Markit set to release manufacturing and services flash PMI reports from Europe and the United States for April.

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