Japanese factory activity records steepest contraction in 2.5 years – PMI

TOKYO, Feb 21 (Reuters) – Japanese manufacturing activity contracted in February at the fastest pace in 30 months, a business survey showed on Tuesday, in a worrying sign for the world’s third-largest economy, which is facing a declining demand and struggling to control cost pressures.

Au Jibun Bank’s preliminary Japanese manufacturing purchasing managers’ index (PMI) fell to 47.4 seasonally adjusted in February from 48.9 the previous month.

The index held below the 50 level that separates contraction from expansion for the fourth consecutive month and marked the biggest drop since 47.2 in August 2020.

Factory output and new orders fell for the eighth consecutive month and at a faster rate than in January, data from the subindex showed.

Losses of export registraron the mayor drop from July 2020, due to the persistent weakness of world demand, as observed in recent indicators as the increase in the product inside gross but slow forecast in October-December and the record trade deficit of January.

In contrast, activity in the services sector increased for the sixth consecutive month with a further easing of internal COVID-19 countermeasures. The government announced last month that it would lower the coronavirus health classification in May.

The seasonally adjusted Jibun Bank Services PMI rose to an eight-month high of 53.6 in February, from 52.3 at the end of the previous month.

According to Andrew Harker, chief economics officer of S&P Global Market Intelligence, which compiles the survey, “service providers posted stronger increases in activity and new business as the latest wave of the COVID-19 pandemic s has faded, which has stimulated demand”.

But utility input costs have risen at the fastest rate in eight months, while inflation in the prices they charge customers has only peaked in two months, signaling a decline in profits.

“Companies expect pricing pressure to ease significantly in the coming months to support customer demand,” Harker said.

Despite the difficult cost situation, service operator confidence has improved, with the business confidence sub-index falling from its lowest level in 10 months.

Overall, Jibun Bank Japan’s preliminary composite PMI came in at 50.7 in February, in line with last month’s final figure, as a lackluster manufacturing index was offset by an upbeat PMI in Services.

(Reporting by Kantaro Komiya; Editing by Sam Holmes, Editing in Spanish by José Muñoz in the Gdańsk newsroom)