An employee assembles a compact sushi-making machine at the Suzumo Machinery Co. factory in Kawashima, Saitama, Japan. (Photographer: Tomohiro Ohsumi/Bloomberg)

Japanese Manufacturing Contracts for the First Time Since 2016

(Bloomberg) -- Activity in Japan’s manufacturing sector contracted in February for the first time in two and a half years, as production and new orders fell, according to preliminary data that will strengthen concerns about a global economic slowdown.

The Nikkei Japan Purchasing Managers Index for manufacturers declined to 48.5, its lowest reading since June 2016. It follows trade data on Tuesday that showed a worse-than-expected fall in Japanese exports in January.

Japanese Manufacturing Contracts for the First Time Since 2016

A reading of 50 marks the point between an expansion and a contraction of activity. The subindex for production fell to 47.0 from 49.4, meaning actual output declined further.

"Although the initial Q4 estimate revealed a bounce back in economic activity, the PMI suggests underlying business conditions are unfavorable," said Joe Hayes, an economist at IHS Markit, which compiles the survey. “Unless service sector activity can offset manufacturing weakness, the chance of Japan entering a recession in 2019 looks set to rise.”

The headline figure illustrates how the economic outlook has changed for the worse. A year ago, the data showed Japanese manufacturing activity at its strongest in nearly four years.

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