TOKYO (Reuters) – Factory activity in Japan contracted at a slower pace in December as declines in output and new orders eased, a private sector survey showed on Monday, approaching stability after recent declines.
The Jepun Bank of Japan's final manufacturing purchasing managers' index (PMI) rose to 49.6 in December, indicating the weakest contraction in three months. The index was slightly above 49.5 in the initial reading and 49.0 in November, but remained below the 50.0 threshold that separates growth from contraction for the sixth month in a row.
“The headline reading is close to neutral amid smaller cuts in both production and new order intakes,” said Osama Bhatti of S&P Global Market Intelligence, who compiled the survey.
The production sub-index contracted for the fourth straight month in December, but the contraction was also slower than last month. Manufacturers indicated that weak new orders were the main factor behind the decline in production.
New orders declined for the 19th consecutive month due to weak demand in both key domestic and overseas markets. Some companies in the survey indicated that the semiconductor market was behind the weakness in new orders.
Employment rates expanded in December and reversed a decline in November, reaching their highest level since April. Companies participating in the survey said they hired more workers due to labor shortages as well as in preparation for future demand.
Input prices rose at the strongest pace since August, as companies pointed to higher costs of raw materials and labor. The weak yen also led to increased inflation. To confront the price increase, companies raised the prices of their products at the fastest rate in five months.
Manufacturers remained confident about their outlook as they expect business to expand thanks to new product launches and mass production.
