Japanese Industrial Production: Three Straight Drops Likely

July 30, 2008

Industrial output in the world’s second largest economy recorded identical 0.7% quarterly declines in 1Q08 and 2Q08.  The second quarter ended limply, with production dropping 2.0% m/m in June and eking out a 12-month increase of just 0.2%.  Every month, Japan’s Ministry of Economy, Trade and Industry releases forecasts of industrial production in the coming two months, based on corporate survey responses to questions about planned production plans in the near future.  When the economy is sputtering as it has been doing, these survey-based estimates tend to be overly optimistic, sometimes wildly so.  Presently, production in July-August is predicted to show a drop of 1.0% not annualized from the 2Q08 average level.  It would be contrary to historic trend if the decline was not by more than 1.0%, which suggests that production growth in 3Q08 will be negative for the third quarter in a row. A streak of such length is associated with a recession more often than not.



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