Elaine Kurtenbach
June 30, 2014

Japan manufacturing output edges up in May


TOKYO (AP) — Japan’s industrial output has recovered slightly in May from a decline following an April sales tax increase, stabilizing as factories produced more machinery, vehicles and electronic devices.

Factory output in the world’s third-largest economy climbed 0.8 percent in May from a year earlier, and was up 0.5 percent from the month before, the economy ministry reported Monday. Output fell 2.8 percent in April.

Manufacturers having rising inventories and are forecasting a decline in output in June before a further recovery in July and beyond, the report said.

Assuming output falls as expected in June, Japan’s manufacturing will likely fall 3.1 percent in the April-June quarter, Marcel Thieliant, an economist with Capita Economics, said in a commentary Monday.

“The rise in industrial production in May suggests that the sector is recovering from the weakness caused by the consumption tax hike,” he said.

The increase in the sales tax to 8 percent from 5 percent is expected to cause a contraction in the economy in the April-June quarter, as demand has fallen off following a rush of purchasing to beat the tax hike earlier in the year.

Japan’s economy was the one of the best performing in the industrial world in the first three months of the year, growing 6.7 percent from the year before and helping push unemployment to 30-year lows.

Prime Minister Shinzo Abe has championed an economic strategy aimed at breaking Japan free of years of deflation. The theory is that companies and households will spend more now if they expect things to cost still more in the future due to inflation.

But for most families struggling to get by on incomes that have been falling since 1997, wages must rise to increase or keep purchasing power constant. Despite some of the biggest wage increases in years for employees of some of the biggest companies, such as Toyota Motor Corp., income of salaried households dropped a real 4.6 percent from the year before in May, to an average 421,117 yen (about $4,160), the eighth straight monthly decline.

So far, wage increases have been mainly in limited categories of workers, most of whom are contract or freelance employees in areas such as trucking and construction.

While there are shortages of labor in some key industries, the recovery so far is not helping push base wages higher for workers as a whole. Similar to the “jobless recovery” in the U.S., Japan’s rebound so far has mostly boosted the hiring of temporary or contract workers, as rising prices and tax hikes eat into consumer purchasing power.

The consumer price index climbed 3.4 percent in May from a year earlier, the fastest increase since the oil shock in 1982, as 10 percent higher rates for electricity and a hike in the sales tax pushed costs sharply higher.

The central bank estimates that about 2 percent of the increase can be attributed to the increase in the tax rate to 8 percent from 5 percent.

But household spending fell 8 percent in the sharpest drop in three years, following the tax hike-beating spending spree early in the year.


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