Japanese Manufacturing Activity Shrinks More Than Expected in September

Japanese manufacturing activity shrank more than expected in September as major automakers continued to grapple with production disruptions, while services activity picked up on strong consumer demand.

The au Jibun Bank manufacturing purchasing managers index (PMI) read 49.6 in early September, less than expectations of 49.9 and worse than the 49.8 seen in the prior month. A reading below 50 indicates contraction, marking the third consecutive month of shrinkage in manufacturing. This weakness was chiefly driven by persistent disruptions in automobile production, impacted by a growing safety scandal among the country’s biggest producers.

In contrast, Japan’s services sector continued to expand at a strong pace, with the au Jibun Bank services PMI rising to 53.9 in early September, up from 53.7 in August. This increase in services demand was primarily fueled by strong private consumption following significant wage hikes secured by Japanese labor unions earlier this year.

Usamah Bhatti, an economist at S&P Global Market Intelligence, remarked, “The latest reading indicated that growth momentum was sustained throughout the third quarter of 2024 and hints at a stronger Q3 GDP reading.”

Private spending has played a key role in driving Japanese economic growth in recent quarters, with consumption rising alongside increased wages.