Japanese Industrial Production Marks Record Decline

Production at manufacturers tumbled a stunning 10 percent from the previous month, the largest decline since Tokyo began measuring such data in 1953.

TOKYO (AP) -- Japan's industrial production plunged at a record pace in January, the government said Friday, as collapsing overseas demand forced manufacturers to keep slashing output and jobs. Household spending and retail sales also fell.

Production at manufacturers tumbled a stunning 10 percent from the previous month, the largest decline since Tokyo began measuring such data in 1953. The drop, which comes after a 9.8 percent decline in December, reflects the unprecedented speed at which Japanese companies have throttled factory lines as exports dry up.

The world's second-largest economy, which is more dependent than ever on exports to drive growth, is sinking into what officials are calling the worst recession since World War II. Data earlier this week showed that exports nose-dived 46 percent in January from a year earlier, giving Japan -- once criticized for its trade surplus -- a record trade deficit.

Factory output fell most among makers of cars, electronics and general machinery, according to the Ministry of Economy, Trade and Industry.

Susumu Kato, chief economist at Calyon Capital Markets Asia in Tokyo, said he's never seen Japanese companies move so quickly. Output and inventory adjustments have been "very, very fast," he said, in part due to manufacturers' greater reliance on temporary contract workers who can be eliminated more easily than full-time employees.

Indeed, major exporters including Toyota Motor Corp. and Sony Corp. -- both of which are forecasting annual losses -- have reduced shifts, suspended factory lines and announced thousands of job cuts over the past few months.

The unemployment rate eased to 4.1 percent in January from a revised 4.3 percent in December, but economists say the figure is misleading because the lower rate stems from workers simply dropping out from the labor market.

So-called discouraged workers, who have stopped actively looking for a job, are counted in Japanese labor data as part of the "non-working population" instead of the unemployed.

Conditions "are so bad that people are giving up on job searches," said Goldman Sachs analyst Chiwoong Lee.

A separate report Friday by the Ministry of Health, Labor and Welfare estimated that nearly 158,000 "non-regular" employees in Japan's manufacturing sector will have lost their jobs between October and March. The prediction is 26 percent higher than the ministry's previous report in January.

As a result, manufacturers' inventory index fell 2 percent in January, indicating that production cuts outpaced shipment declines.

"The implication here is that when demand does recover, both production and employment should respond relatively quickly," said Kyohei Morita, chief economist at Barclays Capital in Tokyo, in a note to clients.

Nissan Motor Co. said Thursday that its inventory levels have dropped low enough to ease domestic production cuts in March. Nissan said earlier this month that it aimed reduce its global headcount by 20,000 workers and scale back global production and inventories by 20 percent by the end of the fiscal year through March 31.

The tighter inventory management is now "bearing fruit," said Nissan spokeswoman Pauline Kee.

Stock investors also found a ray of hope in Friday's data. While the government predicts that industrial production will continue dropping in February, it expects output to bounce back 2.8 percent in March.

"Certainly the numbers were bad, but we're starting to see that things may start changing for the better," said Noritsusu Hirakawa, an equity strategist at Okasan Securities in Tokyo.

The benchmark Nikkei 225 stock index gained 1.5 percent to 7,568.42, its highest closing level since Feb. 17.

Kato of Calyon Capital Markets thinks March may be a little premature for an upswing and says output will probably bottom sometime in the second quarter. Gross domestic product, which contracted last quarter at the fastest pace since 1974, will likely to start climbing again in the July-September period, he said.

Separately, the government said household spending -- a key indicator of domestic consumer demand -- fell 5.9 percent from a year earlier. Consumer spending accounts for more than half of Japan's gross domestic product.

Retail sales fell 2.4 percent in January in the fifth consecutive month of decline, the government said.

Other data showed that prices have stabilized. The core consumer price index excluding fresh food was unchanged from the previous year.

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