Japanese Expansion Downshifts

June 3, 2008

Japan will be hard-pressed to achieve positive growth of any sort in 2Q08 after expanding at a 2.9% annualized pace in the two quarters between 3Q07 and 1Q08. Industrial production in April was already 2.0% below its average first-quarter level. Real personal spending recorded three consecutive month-on-month declines through April, and retail sales slid 0.6% net over that period. The factory sector PMI averaged 48.2 in April and May, down from 50.9 in each of the previous calendar quarters, and it has fallen from 52.3 in January to 47.7 in May. The Shoko Chukin sentiment gauge for employees at small- and mid-sized firms averaged 42.7 in April-May, down from means of 44.8 in 1Q and 46.4 in 4Q07, and such fell by 6.9 points to 42.2 between September and May. Employment in February-Aprill was 0.2% below its year-earlier level, a swing from positive on-year job growth of 0.7% in Dec-January. The ratio of job offers to applicants fell from 1.02 last October to a 37-month low of 0.93 in April. Housing starts (-8.7% y/y in April) and construction orders (-8.4%) remain in the red.

There have been only three quarters in which real GDP fell since the beginning of 2002, most recently in 2Q07. Over these 25 quarters between 4Q01 and 1Q08, GDP expanded at an annualized rate of 2.1%, three times faster than the 0.7% annualized pace of growth between 2Q94 and 4Q01.



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