Japan: Manufacturing sector contracts for first time in over two years in February
The Nikkei flash manufacturing Purchasing Managers’ Index (PMI) declined sharply from January’s revised 50.3 (previously reported: 50.0) to 48.5 in February, the lowest print since July 2016. As a result, the index now sits on the 50-point threshold that separates expansion from contraction in the manufacturing sector.
February’s reading reflected that all-important output and new orders declined at a faster rate compared to the previous month. As a result, employment growth slowed in the same month. Stocks of purchases decreased at a slower rate, while suppliers’ delivery times continued to lengthen. New export orders continued to fall in February, reflecting an uncertain global economic outlook. Moreover, price pressures remained subdued, suggesting that Japan is still far from achieving sustained increased in consumer prices.
Joe Hayes, economist at IHS Markit, which compiles the survey, noted that:
“Although the initial Q4 estimate revealed a bounce back in economic activity, the PMI suggests underlying business conditions are unfavourable. This was further highlighted by output expectations turning negative for the first time in over six years, which comes as no surprise given the international headwinds Japanese manufacturers are facing such as a China slowdown and the global trade cycle losing further steam. Unless service sector activity can offset manufacturing weakness, the chance of Japan entering a recession in 2019 looks set to rise.”