Japan Manufacturing Shows Signs Of Recovery, But Economy Still Plagued By Unemployment

Japanese factory production jumped significantly in April and inventories fell, an indication that the nation’s manufacturers are beginning to recover. However, soaring unemployment and slumping consumer spending have tempered optimism about Japan’s economy.

Factory output rose 5.2% from March, the biggest jump since 1953.  April marked the second consecutive month of manufacturing gains, a trend that analysts see continuing through June. Manufacturers have forecast an 8.8% production increase in May and a 2.7% increase in June.

“The fact that they’ve raised the projection for May and also for further growth in June really does confirm the story that the inventory adjustment process is over,” Richard Jerram, chief Japan economist at Macquarie Research, told The Wall Street Journal.

Inventory levels fell 2.7% in April, Japan’s Ministry of Economy, Trade and Industry reported. The release of May’s Purchasing Manager’s Index (PMI) was equally optimistic. The seasonally adjusted index rose sharply to 46.6, from 41.4 in the previous month, pointing to the slowest deterioration in operating conditions in nine months.

However, unemployment and a drop in consumer spending continue to dampen any prospects of economic recovery in Japan.

The nation’s unemployment rate rose to a five-year high of 5% in April, its highest level since 2003. The jobless rate is expected to hit 6%, perhaps by the end of the year. That would break Japan’s record of 5.5% set in June 2003.

Rising unemployment has badly crimped consumer spending. Household spending declined 1.3% in April from a year ago and retail sales fell 2.9%.

“Consumer spending is too weak to support a recovery, given the deterioration in the job market,” Kyohei Morita, chief economist at Barclays Capital PLC (BCS) in Tokyo told Bloomberg. “Japan’s economy will remain fragile in the absence of stronger domestic demand.”

Japan’s gross domestic product (GDP) declined by an annualized 15.2% in the first quarter.

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