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The government downgraded its assessment of economic conditions for the fourth straight month in its May report released Friday, saying the economy is “further weakening.”

The assessment was a slight downward revision from the April report’s view that the economy was “weakening,” and reflects the deterioration anticipated last month, a Cabinet Office official said.

It was the first time for the government to downgrade its assessment for four consecutive months since the period between September 1997 and February 1998, when the economy was in recession.

The official said the nature of the weakness is a continuation of that seen in April, attributing the downtrend to falling industrial production and further unemployment.

The government was unable to decide until the last moment whether to leave the assessment unchanged in May or revise it slightly down, he said.

The report downgrades individual assessments on production, employment and imports.

An increase in inventories was noted in addition to weak output and a drop in overtime work was added to sluggish job offers, while growth in imports was described as flat instead of slow.

Inventories increased, particularly in semiconductor-manufacturing devices and electronic parts, thanks to a sharp slowdown in information technology-driven exports to the United States, the report says.

Although the government stopped short of downgrading its view on corporate activities, there is growing concern that corporate earnings and investment will plummet in the near future, the official said.

With regard to personal consumption, which has long been deemed almost flat, the report takes up as the month’s focus the April 1 launch of a recycling law that obliges consumers to pay recycling fees for disposing of four types of large electrical appliances.

The law prompted consumers to replace old devices with new ones before April, causing an almost twofold increase in sales of refrigerators, television sets, air conditioners and washing machines in March from a year earlier, it said.

However, the impact on consumption in general was limited compared with the April 1997 consumption tax hike, so the government maintained the view that personal spending continued to be more or less flat, the report says.

Machinery orders down

Private-sector machinery orders in the January-March quarter dropped 7 percent from the previous three months, down for the first time in seven quarters, the Cabinet Office said Friday.

Core machinery orders, excluding those for ships and those from electric power companies, came to 2.963 trillion yen, falling for the first time since a 4.3 percent drop in the April-June quarter of 1999, it said.

Orders in the manufacturing industry dropped 12.8 percent, with orders from electric machinery makers declining 25.5 percent, down for the first time in nine quarters amid the fall in demand for semiconductor-manufacturing devices.

Looking ahead, the Cabinet Office said it sees a mild quarter-to-quarter rise of 0.4 percent in the April-June period.

“We think that capital investment will weaken in the middle of the year, namely from July,” said Yoshihiko Senoo, a senior official at the Cabinet Office’s Economic and Social Research Institute.

In March, key machinery orders fell a seasonally adjusted 3.6 percent from the previous month to 973.3 billion yen.

The drop followed a 3 percent increase in February and a 7.5 percent decline in January.

The figures have led the government to downgrade its view of machinery orders for the first time in three months, an official at the Cabinet Office said.

“We are now of the view that the trend in machinery orders is weak,” Senoo said. “We will be carefully watching future movements.”

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