November 26, 2018 / 2:37 AM / a year ago

Japan November factory activity expands at slowest pace in two years: flash PMI

TOKYO (Reuters) - Japanese manufacturing activity expanded at the slowest pace in two years in November and new orders contracted for the first time since September 2016, a preliminary survey showed, raising doubt about growth prospects for the current quarter.

FILE PHOTO - A worker is seen at an assembly line of Honda Motor Co.'s motorcycles at Honda's Kumamoto factory in Ozu town, Kumamoto prefecture, Japan, September 13, 2016. REUTERS/Naomi Tajitsu/File Photo

The Flash Markit/Nikkei Japan Manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 51.8 in November from a final 52.9 in October.

The index remained above the 50 threshold that separates contraction from expansion for the 27th consecutive month.

However, the flash reading was the weakest for a month since November 2016, and a significant drop from October’s six-month peak.

“The underlying trend appears to be skewed to the downside,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“Indeed, the fall in new orders is a worrying development as easing global growth momentum coupled with a weak domestic backdrop could spell further demand woes for Q4.”

The survey data suggests manufacturers have already begun to pare expectations. They continued to expect output to rise in future, but the degree of optimism declined for a sixth straight month.

The index for new orders dropped to 49.6 from 52.6 in October, while that for new export orders showed expansion, though at a slower pace.

Output expanded again, according to the flash reading, though it grew less than in October.

The index for new export orders, a leading indicator of shipments from Japan, slipped to 50.8 from 51.1 the previous month.

Japan’s economy, the world’s third largest, shrank more than expected in the third quarter, hit by natural disasters and sluggish exports.

While the economy is expected to return to growth this quarter as effects from natural disasters fade, slowing global demand and the intensifying U.S.-China trade war cloud the outlook for export-reliant Japan.

(This version of the story has been refiled to fix headline formatting, adds slug)

Reporting by Tetsushi Kajimoto; Editing by Richard Borsuk

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