(Bloomberg) -- Japan’s industrial production dropped again in May even as a nationwide state of emergency was lifted, showing the severity of the pandemic’s impact on the export-reliant manufacturing sector.

Factory output fell 8.4% from April, the economy ministry reported Tuesday. Production slid from the prior month for a fourth time in a row, something that hasn’t happened since 2012. The result was worse than any of the forecasts from 28 analysts. The median projection was for a 5.9% decline.

A separate report showed the unemployment rate rose to the highest level in three years.

Key Insights

• Tuesday’s production report suggests that even as the lifting of restrictions allows Japan’s factories to restart, weak global demand means there’s less work to do. Recent rises in infection rates in the U.S., Japan’s biggest overseas market last year, makes a speedy recovery unlikely.
• Domestic spending could also stay depressed amid the fear of a second wave of virus cases and more potential job losses. Japan’s unemployment rate is still much lower than elsewhere, but the headline figure doesn’t take into account millions of workers who have been forced to take leave during the pandemic.
• Some government aid has been slow to reach people and companies in need, adding another risk. Some analysts expect more fiscal stimulus if the impact of the pandemic drags on.

What Bloomberg’s Economist Says

“Looking ahead, we see a pickup in production in June, with a gradual recovery continuing in 3Q, buoyed by the re-opening of economies in the U.S. and Europe.”

--The Asia economist team

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• The jobless rate rose to 2.9% in May from 2.6% in April. Analysts expected 2.8%.
• The jobs-to-applicant ratio deteriorated from 1.32 in April to 1.2 in May, meaning there were 120 job offers for every 100 applicants. Economists had predicted 1.22.

(Adds data on labor market.)

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