Downbeat view of economy retained

The government on Wednesday maintained its lackluster view of the economy, restating that it has weakened but refraining from indicating whether this signals an end to recovery signs that have been observed in some areas.

“While movements of an incipient recovery can continue to be seen in some areas of the economy, the (overall) state of the economy has weakened somewhat,” the Cabinet Office said in a February report, leaving its January view intact.

It is the first time in four months that the government left its view unchanged from the preceding month. In January, the office downgraded its economic assessment for the third straight month, citing slower production activities.

It left the February view unchanged apparently due to contrary developments in key economic factors — a downward move in personal consumption and an improvement in business investment.

The government also upheld expectations that a continued recovery in the U.S. economy will help put Japan on a nascent recovery track, while remaining concerned about such risk factors as a U.S.-led war with Iraq and weakening consumer sentiment at home.

“As for short-term prospects, the economy is expected to move toward an incipient recovery if the recovery in the U.S. and other economies is sustained,” the report says.

“On the other hand, there are concerns that the uncertainty surrounding the future of the world economy and the weakening of consumer confidence may still exert downward pressure on final demand” and further depress the economy.

Regarding personal consumption, the latest report identifies “weak movements” in its generally flat trend.

“While private consumption remains generally flat, weak movements can be seen most recently,” it says.

Jun Saito, a Cabinet Office economist who briefed reporters, attributed the weak consumer activity chiefly to a drop in winter bonuses.

The weakness in final demand may also be reflecting a decline of industrial production, which is seen merely as a temporary downswing, the official said.

“Industrial production has declined somewhat,” the office said, maintaining the view from January.

The report also says exports have flattened. Exports fell a seasonally adjusted 8 percent in December from November, but the longer-term trend remains flat, Saito said.

It goes on to say that domestic prices of corporate goods are “weakening,” a downward revision from the January view that they were flat.

However, it upgraded its view on business investment in facilities and equipment by confirming that it “has bottomed out.”

The view comes from an estimated 0.7 percent fall of the October-December business investment after a seasonally adjusted 3.1 percent climb the previous quarter and a 0.3 percent gain in machinery orders, which indicate investment moves six to nine months ahead, Saito said.

But the bottoming-out is unlikely to lead to an immediate increase in corporate investment, the official added.

Also on the positive side were improved corporate profits and increased job offers, although the employment situation continues to be severe and the jobless rate at its highest point ever, according to the report.