Japan's manufacturing sector is the weakest it's been in years

Photo by Adam Pretty/Getty Images

Japan’s enormous manufacturing sector is looking ill.

The Nikkei-Markit flash manufacturing purchasing managers’ index (PMI) fell to 47.6 in May, marking the steepest contraction in activity levels since December 2012.

It was also well below the 48.2 level seen in April.

A PMI measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction — so the higher the number the better. The flash reading is based off the responses from 85-90% of survey panelists, and is usually similar to the final PMI figure released at the start of each month.

Like the headline index, the internals of the May report were equally dire, as demonstrated in the table below, supplied by Markit.

Aside from the surveys’employment subindex, most of the major components contracted at a faster pace than March.

Although an ugly set of figures, Amy Brownbill, an economist at Markit, suggests the deterioration was likely a result of disruptions caused by a series of large earthquakes which shook the southern Japanese island of Kyushu in April, a major manufacturing hub.

“Manufacturing conditions deteriorated at a faster rate mid-way through the second quarter of 2016, suggesting the aftermath of the earthquakes were still weighing heavily on goods producers,” said Brownbill.

“Both production and new orders declined sharply and at the quickest rates in 25 and 41 months respectively. One of the primary reasons behind the fall in total new orders was a marked contraction in foreign demand, which saw the sharpest fall in over three years.

“Goods producers were also less optimistic towards their hiring policies with the rate of job creation easing from April’s three-month record,” she added.

Fitting with the deterioration in manufacturing activity seen in May, the value of Japanese imports slumped by 23.3% in April, the steepest annual contraction since October 2009.

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