The government said Tuesday it has revised downward its key gauge of the state of the economy for July, with the index of coincident indicators falling to 10 percent from a preliminary 12.5 percent.

A reading above 50 percent is considered a sign of economic expansion, while a reading below that level indicates contraction.

The key index, designed to measure the current state of the economy, stayed below the boom-or-bust line for the seventh consecutive month. It is the longest period it has stayed below 50 percent since a 17-month stretch between August 1997 and December 1998, when the economy was in recession.

The Cabinet Office also said the index of leading indicators, a measure of economic growth six to nine months down the road, has been revised downward to 55.6 percent from a preliminary 71.4 percent.

The index of lagging indicators, which gauges economic performance in the recent past, was unchanged at 50 percent.

Nine of the 10 available component coincident indicators were in the minus column for July, including raw material consumption and capacity utilization by manufacturers.

Of the nine component leading indicators, four were in negative territory, including manufacturers' raw material inventory ratios and core machinery orders.

The diffusion indexes of the coincident, leading and lagging indicators compare the current levels of various economic indicators with their levels three months earlier.

'01 capital spending

Capital investment by major Japanese companies in fiscal 2001 will rise only 0.6 percent, compared with the gain of 4.1 percent recorded the previous year, the governmental Development Bank of Japan said in a survey released Tuesday.

The survey, conducted in August, showed that deceleration in the U.S. economy, combined with the global slump in information technology businesses, have made major firms reluctant to spend. Capital spending in the electric machinery sector is likely to fall 6.3 percent, instead of jumping 38.7 percent like it did the previous fiscal year.

While investment will enter an adjustment phase, the terrorist attacks in the United States are likely to have a significant impact on exporters, the DBJ said.

Capital spending in the manufacturing sector will rise 6.2 percent in the reporting year through March 31, boosted mainly by a 9.8 percent gain in the automobile industry.

Chemical manufacturers are expected to spend 15.4 percent more than last year to launch high value-added products, the DBJ said.

Meanwhile, spending in the nonmanufacturing sector is likely to decline 2 percent, it said.

Investment in next-generation mobile phones will see the telecommunications and information sectors spend 6.1 percent more, but the wholesale and retail industry will spend 22.2 percent less after companies in the category rushed to set up outlets before the Large Scale Retail Stores Location Law was enforced the previous year.

Spending by the real estate sector will fall 30.6 percent, reflecting a decline in local development projects, the DBJ said.

In fiscal 2002, which will begin April 1, overall capital investment will rise 1.4 percent, with the manufacturing sector down 9.2 percent and the nonmanufacturing sector up 3.4 percent, the DBJ said.