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Economy in Brief

Japan's IP Recovery Slows
by Robert Brusca  September 30, 2021

Industrial production in Japan fell broadly in August declining for the second month in a row after an outstanding gain in June which was simply a rebound from a horrific loss in May. Japan's output recovery has been uneven and herky-jerky. Still, output shows net gains over 12 months, six months and three months. There is growth but with no clear trend.

Manufacturing shows a sizeable 12-month gain, a drop over six months and strong growth over three months. Transportation goods show declines on all horizons while textile output has been erratic.

Among the product groups, only intermediate goods show gains over 12 months, six months and three months. Consumer goods output is lower over 12 months and six months but manages a 5.4% annualized gain over three months. Investment goods output is getting progressively weaker. And among the product group sectors, all show declines in output in August including mining and utilities as well.

In the quarter-to-date (QTD), total output is falling and manufacturing output is falling. Among the product groups, four of five are declining in the QTD and most are falling and falling at reasonably strong rates of decline.

Total output and manufacturing output each are 10% or more below their past cycle peak. By sector, mining and consumer goods are the weakest relative to their respective past peaks.

Japan has had a hard time mounting growth in the wake of the emergence of Covid-19. Nineteen months on from January 2020 just before Covid struck, overall output is still lower by 2.5% and manufacturing is lower by 4.1%. Textile and transportation sector output are both down sharply over the period. Consumer goods output is lower by 10.1% from January 2020. Intermediate goods output is barely lower by 1.7% and investment goods output is up by 0.5%. Mining is off by 4.3% while utilities output is just a few ticks lower than it was in January 2020.

Japan's industrial sector is simply another chapter in the story of how little the global economy has progressed since Covid struck. While Japan did see some large declines in output and there were some strong gains, the gains were only to recover from losses not to make net gains.

Japan also continues to struggle with Covid and has been slow to acquire vaccination coverage. However, conditions could be changing as the last wave of Covid is showing signs of diminishing and could put growth back in the limelight for a while globally. However, Covid has tended to come and go in waves and when one wave breaks there has generally been another behind it; thus, we are only looking for a respite from the last spread of the virus to carry growth for a while. There is no telling when an extended surge in output might endure.

As of now, there are too many questions about the Delta variant, the efficacy of the vaccines, the use of boosters, and the emphasis on vaccinating lower income countries to have a good idea how the next growth scenario will play out. In addition, there are some global concerns about energy prices and some real concerns about energy availability especially in China. Since China is the most important trade partner for Japan, that raises question marks about Japan's growth prospects even as it is getting ready to seat a new prime minister. Japan still has a lot on its plate.

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