Japan factory output plunges, jobless rate jumps

Published by rudy Date posted on January 31, 2009

TOKYO (AP) — The pain of Japan’s recession is spreading from the factory floor to the living room, as December figures showed companies slashed output at a record pace, the jobless rate surged and household spending fell sharply.

Industrial production at the nation’s manufacturers plunged 9.6 percent in November, the largest drop since Tokyo began measuring such data in 1953, the government said Friday. A survey predicted further declines of 9.1 percent in January and 4.7 percent in February.

Meanwhile, Japan’s unemployment rate jumped to 4.4 percent from 3.9 percent in November — the biggest increase in almost 42 years, according to the Ministry of Internal Affairs. Household spending dropped a worse-than-expected 4.6 percent in December, falling for the 10th straight month.

In a sign of more pain to come, electronics giant NEC Corp. said Friday it plans to cut 20,000 workers worldwide — about half of them in Japan — as it tries to stanch widening losses from semiconductors and other businesses. NEC also projected that it will report a net loss for the fiscal year through March, joining a string of other companies including Sony Corp. and Toshiba Corp., which are cutting jobs even as they expect to slide into the red for year.

The yen’s surge over the past few months has dealt a further blow to the world’s second-largest economy by eroding exporters’ overseas earnings.

While companies have been cutting production, payrolls and profit estimates since October, the government’s latest figures suggest that the country’s downturn is accelerating rapidly in both depth and breadth.

The bad data “changes the picture” of the recession, said Kyohei Morita, an economist at Barclays Capital in Tokyo. It’s not just companies that are hurting but workers and families as well now, he said.

Economy Minister Kaoru Yosano expressed similar concerns, describing the deteriorating labor market as “extremely serious,” according to Kyodo news agency.

“The fallout from the worldwide recession has rippled through the Japanese job market,” Kyodo quoted Yosano as saying.

The International Monetary Fund estimates that Japan’s economy contracted 0.3 percent in 2008 and on Wednesday lowered its 2009 growth forecast for Japan to minus 2.6 percent.

The new data, plus gloomy earnings reports this week, helped drive down the benchmark Nikkei stock average 3.1 percent to 7,994.05.

On Thursday, Sony reported that its net profit in the October-December quarter plunged 95 percent to 10.4 billion yen ($115.6 million). It is cutting 8,000 of its 185,000 jobs around the world and shuttering five or six plants — about 10 percent of its 57 factories.

Toshiba Corp., forecasting a fiscal year loss on plummeting demand for its flash memory chips, announced a turnaround plan that includes cutting 4,500 contract workers and delaying or canceling investments in massive new chip plants.

The government said the number of unemployed persons in December 2008 hit 2.70 million, an increase of 390,000 from the previous year. But if companies shed even more temporary workers or expand layoffs to full-time employees, unemployment rates will keep climbing.

“We foresee further substantial increases in the unemployment rate as we expect a further increase in job terminations for non-regular workers in January-March,” said Goldman Sachs economist Chiwoong Lee in a note to clients.

The growing insecurity over jobs and wages is forcing families to tighten budgets.

On top of the drop in household spending, the government said on Thursday that Japan’s retail sales sank 2.7 percent in December, the biggest drop in nearly four years and the fourth straight monthly decline.

The month also turned concerns about inflation into worries about deflation.

The core consumer price index, which excludes volatile fresh food prices, rose just 0.2 percent in December following a 1 percent increase in November. Core CPI in the Tokyo area, considered an indicator of national price trends, fell 0.7 percent in January.

Bank of Japan Gov. Masaaki Shirakawa has reiterated that the country is not currently at risk of falling into a deflationary spiral.

But Lee of Goldman Sachs isn’t as confident.

He writes: “The economy is worsening too rapidly for us to completely rule out the possibility of a deflationary spiral,” which pushes interest rates higher, dampens demand and damages the economy.

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