Japan's Factory Output Falls

Japanese companies laid off more workers and hit the brakes on production in February, sending factory output down for the first time in a year.

TOKYO (AP) -- Cautious Japanese companies laid off more workers and hit the brakes on production in February, sending factory output down for the first time in a year.

Industrial production in the world's second-biggest economy retreated 0.9 percent from January, following 11 consecutive months of gains, the government said Tuesday. The result undershot Kyodo News agency's average market forecast of a 0.4 percent decline.

A separate report showed Japan's unemployment rate was unchanged at 4.9 percent in February. But the number of jobless rose 8.4 percent from a year earlier to 3.24 million, with 1.1 million saying they were laid off.

February's output lull is expected to be temporary. The Lunar New Year holidays during the month lowered demand across Asia, and a surprisingly robust 2.7 percent jump in January pointed toward an inevitable downturn in the following month.

The slump hit Japan's mainstay auto and high-tech sectors in particular, slowing production of LCD televisions and small passengers cars.

The government predicts the figure will climb 1.4 percent in March as export demand in key markets such as China and the U.S. underpins the country's economic recovery.

Still, the latest numbers offer a less than inspiring picture of Japan's economic health. Economists question whether recent improvements can be sustained and translate into stronger job and wage growth.

"The pace of improvement in overseas demand may not be sustainable, and we note that firms are cautious in their behavior," said Goldman Sachs economist Chiwoong Lee in a note to clients. "These are not fertile conditions for a strong labor market revival."

Japan's economy grew at an annualized rate of 3.8 percent in the October-December quarter. But companies remain conservative with spending and are still focused on cutting costs and rebuilding profits.

Sluggish consumer demand has forced companies to slash prices, which in turn exacerbates deflationary pressures that threaten to undermine Japan's longer-term prospects. February's core consumer price index dropped for the 12th straight month in February.

Inventories rose 1 percent from the previous month, while shipments slipped 0.2 percent, the government said.

The ratio of job offers to job seekers stood at a seasonally adjusted 0.47 in February, up from 0.46 last month, a labor ministry report also showed Tuesday. That means there were 47 positions available for every 100 job seekers.

The number of people with employment fell 1.3 percent to 61.85 million, the government said.

Household spending fell 0.5 percent in February from a year earlier, marking the first decline in seven months.

Next up on the indicator schedule is the central bank's "tankan" survey of business sentiment. The closely watched quarterly report, used to guide monetary policy, is due out Thursday.

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