Japan's factories extend activity declines to 18th month - PMI

TOKYO (Reuters) - Japan's factory activity declined for a record 18th month in October due to weakening output, new business and employment, but export orders grew for the first time in two years in an encouraging sign for the coronavirus-ravaged economy.

The world's third-largest economy is struggling to regain traction after suffering its worst postwar slump in the second-quarter, with lacklustre business and household spending at home threatening to put the brakes on any recovery.

The final au Jibun Bank Japan Manufacturing Purchasing Managers' Index (PMI) rose to 48.7 in October from the previous month's 47.7, staying below the 50.0 threshold that separates contraction from expansion for a record 18th consecutive month.

But the final figure beat a preliminary 48.0 reading and indicated manufacturing activity contracted at its slowest pace since January, when the health crisis had already started affecting the global economy.

The PMI survey showed output, new orders and work backlog contracted again, although at a more modest pace, while employment conditions deteriorated at a faster speed for the first time in four months.

Export orders posted growth for the first time in nearly two years, primarily thanks to improved demand across the Asia-Pacific region.

"Japanese manufacturers will be particularly buoyed by the return to growth in export orders," said Usamah Bhatti, economist at IHS Markit, which compiles the survey.

"The sector reported a weakening employment trend in October, however, as staff numbers fell at a faster pace compared to September."

Another hopeful sign in the survey were its results on future output, pushing growth expectations for the year ahead rising to their highest since April 2017.

Japan's economy likely returned to growth in the three months through September, gross domestic product data due on Nov. 16 is expected to show, following three quarters of contraction.

On the whole, the rebound is expected to be modest given the still-weak global economic conditions and a second-wave of coronavirus cases around the world impacting business and consumer activity.

(Reporting by Daniel Leussink; Editing by Shri Navaratnam)