Japan recession gaining ground
Bloomberg News Service
TOKYO — Japan appears to be sliding closer to recession as reports yesterday showed that factory production in April fell more than expected for a second month, unemployment climbed to a near record high and consumer spending shrank.
Associated Press
Industrial production fell 1.7 percent last month from March, more than the 1 percent decline economists expected. Unemployment rose to 4.8 percent from 4.7 percent, just below January's record 4.9 percent. Salaried workers spent 1.3 percent less last month as they worried that they may be next to lose their jobs.
Resting near a Tokyo railway station or at work worrying about their jobs, Japan's consumers are opting to save rather than spend. One analyst's observation: The economy is displaying "a very typical" pattern of recession.
"It's a very typical and classical pattern of recession," said Takehiro Sato, an economist at Morgan Stanley Dean Witter Japan Ltd.
Sato, who expects the economy to shrink 0.5 percent this quarter and 0.3 percent next quarter, said the contraction may be even worse, given yesterday's reports.
Eight of 20 economists surveyed by Bloomberg News last month said they expected the economy to shrink this quarter. The world's second-biggest economy is being squeezed by falling exports, which helped pull the economy out of its last recession, and declining spending at home.
Isuzu Motors Ltd. typifies what's gone wrong in Japan. The country's third-biggest manufacturer of trucks hasn't turned a profit for two years and yesterday said it will eliminate 9,700 jobs, or a quarter of its work force; close a truck plant near Tokyo; and move some production to Thailand and the United States.
Auto exports fell 13 percent in April from a year ago, industry figures showed yesterday. Honda's overseas shipments dropped 29 percent.
Even as production slows, companies can't sell everything they are making. Shipments fell 2.5 percent last month from March, while inventories rose 2.1 percent. That may lead to further production cuts in coming months as companies run down supplies of unsold goods.
In a bid to bolster profits, companies are also closing money-losing divisions and moving factories overseas to take advantage of cheaper costs, leading to further declines in production and more job cuts. Production is expected to rise 0.3 percent this month before falling 0.8 percent next month, according to a survey of companies by the Ministry of Economy, Trade and Industry. Companies have overestimated how much they'll produce for 10 months in a row, and even the ministry is becoming skeptical.
"Each month production comes in lower than expectations, so we really can't say whether next month we'll really see an increase," said Shigenori Jinyama, who heads the ministry's statistics section.
Even if the forecasts are met, production will decline about 3 percent in the three months to June 30 from the first quarter, said Vincent Musumeci, an economist at ABN Amro Securities.
Meanwhile, Isuzu joins a growing list of Japanese companies cutting jobs. Mitsubishi Motors Corp. said it will cut 9,500 jobs, Sanyo Co. is shedding 6,000 workers, and Japan Airlines Ltd. is cutting back by 4,200; Aiwa Co. has said 700 jobs will disappear.
The layoffs are pushing the jobless rate higher.
Unemployment will "continue to rise," said Yasukazu Shimizu, an economist at Aozora Bank Ltd. "I'm expecting it to rise as high as 5.5 percent."
That's causing people to save rather than spend. The so-called propensity-to-spend ratio, which falls when people save more and spend less, slid from 73.6 percent in March to 69.1 percent last month — the lowest since figures were first compiled in 1975.
In one spot of bright news, the number of jobs available rose. There were 62 jobs for every 100 applicants at government-run work centers in April, up from 61 in March. Still, economists said the increase may be short-lived as companies cut workers to keep profit from falling.
