Industrial output drop is biggest since 3/11

Kyodo

Industrial production fell 4.1 percent in September from the previous month in the sharpest drop since the March 2011 quake-tsunami catastrophe, government data showed Tuesday.

The third consecutive monthly decline in the index of output at factories came on the back of weak external demand and the termination of government subsidies for buying fuel-efficient vehicles, officials at the Ministry of Economy, Trade and Industry said.

METI downgraded its basic assessment of production for the second straight month, saying it is “on a downward trend.” The seasonally adjusted index stood at 86.5 against the base of 100 for 2005, according to a preliminary report.

“External economic conditions are extremely tough, given the eurozone debt crisis and the slowdown in the Chinese economy. . . . This situation is likely to continue for the time being,” METI chief Yukio Edano told a news conference, pledging that the government will act flexibly depending on the state of the economy.

By sector, production by transport equipment makers dived 12.6 percent, marking the fifth straight monthly fall, due to reduced output for the North American, European and Chinese markets and the Sept. 21 termination of domestic auto purchase incentives by the government.

Production by general machinery makers dropped 5.0 percent, while that for iron and steel makers, including items used for cars, fell 5.3 percent.

A METI official said decreases in the production of some car parts may have been affected by the recently chilled ties between Japan and China over the Senkaku territorial dispute.

Masahiko Hashimoto, an economist at Daiwa Institute of Research, said the drop in car production was no surprise, but the sluggish performance in other sectors was broader than he had expected.

“Because cars use parts from various industries, the spillover effect is large and has likely pushed down domestic production,” he said.

Of the 16 sectors included in the preliminary report, the only bright spot was the electronic parts and devices makers, which saw production rise 2.4 percent.

Looking ahead, manufacturers polled by METI anticipated that output will fall 1.5 percent in October and rise 1.6 percent in November.

The index of industrial shipments lost 4.4 percent to 87.5, while that of inventories was down 0.9 percent to 107.8.

In March last year, the index of production dropped 16.2 percent after the earthquake and tsunami disrupted supply chains and caused power shortages.

Household spending off

Household spending fell an average of 0.9 percent in September from a year earlier to ¥266,705 on an inflation-adjusted basis, marking the first shrinkage in eight months, the government said Tuesday.

The Internal Affairs and Communications Ministry said consumption is “on a weak note,” revising downward its basic assessment in an earlier preliminary report.

The slump is partly attributable to declining expenditures on housing repairs, as the government has stopped accepting subsidy applications for energy-efficient buildings except in areas hit hard by the March 2011 earthquake and tsunami.

Spending on clothing fell on the back of relatively hot weather in September, while demand for flat-screen TVs remained sluggish.

Automobile-related spending increased. But analysts say the outlay is likely to decline going forward as the government subsidies for energy-friendly cars ceased in September.