The first reading on the health of the global manufacturing sector in early 2017 has just been released, and it’s good news.
The Nikkei-Markit flash manufacturing purchasing managers index (PMI) for Japan jumped to 52.8 in January, up from 52.4 in December, leaving it at the highest level seen since March 2014.
The PMI measures changes in activity levels across Japan’s enormous manufacturing sector from one month to the next, with a reading of 50 indicating that activity levels were unchanged from one month earlier. Anything above 50, as seen in January, indicates that activity levels improved during the month.
At 52.8, it suggests that activity levels improved steadily, rather than rapidly, at the start of 2017.
The “flash” reading, as it is known, is released one week ahead of the final PMI report, and captures responses from around 85% to 90% of all firms surveyed. If history is any guide, the change between the flash and final report each month is generally small in scale.
As seen in the table below, supplied by Markit, the strength in the headline PMI was mirrored by the vast majority of the surveys subindices.
Output levels continued to expand, albeit at a slightly slower pace, while new orders and new export orders also increased at a faster pace.
Not only is the lift in orders a good sign for future activity levels given they are lead indicators, it also helps bolster the view that global demand is improving.
Fitting with the lift in new orders, firms added staff at a faster pace in January while both input and output prices both increased, providing hope that recent strength in commodity prices is now starting to translate to higher prices for finished goods.
For the Bank of Japan, perennially battling deflationary pressures in the Japanese economy, the lift in both upstream and downstream price pressures will be welcome news.
Adding to optimism over the outlook for the sector, expectations for output levels in the future surged with the newly-launched business expectations index jumping to a 44-month high.
Conditions are already good, and they’re expected to improve, at least according to responses from the sector.
The flash PMI from Japan kicks off a torrent of PMI reports from the Eurozone and United States in the coming days, with further improvement in these regions likely to fuel the belief that not only is the global economy improving, but that it’s gathering pace.