Japan’s Industrial Struggles Intensify

Japan's industrial sector sputters and declines looking like a car that is running out of gas in January. January output fell by 4.3%, that is a sharp drop, after being flat in December and rising 0.7% in November. Progressive growth rates show that output growth is declining and decelerating. Japanese output is down by 3.2% over 12 months, falling at a 10.6% annual rate over six months, and then falling at a 13.5% annual rate over three months.

Manufacturing- This weak result is driven by manufacturing which saw output fall by 4.6% in January and where the sequential growth rates for overall manufacturing mirrors the path for industrial production and is getting progressively weaker as well.

Sector performance- Sector growth rates in Japan for consumer goods, intermediate goods, and investment goods show output on the decline and clearly decelerating across all of these categories. In January, output falls in all three sectors as it dropped 3% for consumer goods, 5.2% for immediate goods, and 4% for investment goods. Consumer goods output is holding up better than output in other sectors; still, the increase in output is just 3% over 12 months, it's up at a 1.1% annual rate over six months and it's dead flat over three months. Intermediate goods output falls 7.5% over 12 months, drops at a 14% annual rate over six months and declines at a 21.5% annual rate over three months. Investment goods output falls 1.1% over 12 months, then falls at a 20.3% annual rate over six months, and at a stunning plunge at 35.7% annual rate over three months. Manufacturing in Japan is unequivocally weak and output is unequivocally declining and it's declining in all sectors and it's declining on all tenors.

Two industries- Two industries saw increases in output in January. Mining output increased 1.3% and electric & gas output increased by 0.2%. Mining still shows sequential weakness with output down 6.2% over 12 months, followed by a 6.4% annual rate decline over six months, then accelerating to a 12.5% annualized rate decline over three months. Electric & gas output falls 4.2% over 12 months, accelerates to a 9.6% annualized rate decline over six months, but then logs an 8.1% annualized increase over three months, largely on the back of a one-month rise in December.

QTD Output is falling on a quarter-to-date (QTD) basis early in the first quarter. These calculations take output in January and gauge its annualized growth rate centering the calculation’s base on the average for the fourth quarter while compounding the growth rate. Early in the first quarter, output is falling at a 22% annual rate with manufacturing output falling at a 23% annual rate. Consumer goods output is falling at about a 10% annual rate, with intermediate and investment goods output each falling at a rate of 30% or faster. The decline in output in the first quarter is deep and broad.

Output since COVID has been lethargic…or worse Looking at Japan’s industrial performance since COVID struck, the percent changes in output from January 2020 to date show declines for manufacturing, for industry overall, for consumer goods, for intermediate goods, and for investment goods. No major sectors were spared although the electricity & gas industry experienced a slight 1% gain over this three year, a very small improvement.

Summing up Japan's report is about as unequivocally weak as an economic report can be. There really are no contrary trends; all sectors are pointing in the same direction – lower.