Japan's February Industrial Production Falls 2.1% (Update8)
Japan's February Industrial Production Falls 2.1%
March 30 (Bloomberg) -- Japan's industrial production had the biggest drop in a year in February, led by electronic parts and machinery, adding to signs that a recovery in the world's second- biggest economy may stall.
Production fell a seasonally adjusted 2.1 percent from January, when it rose 2.5 percent, a report by the Ministry of Economy, Trade and Industry showed in Tokyo today. The median forecast of 33 economists surveyed by Bloomberg News was for a 1.1 percent drop.
Manufacturers including Seiko Epson Corp., the world's second- largest printer maker, say profits are being curbed by falling prices for electronics. Factory production also slumped in South Korea, Taiwan and Singapore last month after demand for the region's laptop computers, semiconductors and cell phones fell short of company forecasts.
``We're not going to see a strong recovery in industrial production this quarter,'' said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. in Tokyo, who forecast production would drop 2.2 percent.
The Nikkei 225 Stock Average fell 0.5 percent to 11,542.15 at 2:04 p.m. in Tokyo, led by industrial-robot maker Fanuc Ltd. and Sony Corp., the world's second-largest consumer electronics company.
Rising interest rates and gasoline prices are leaving consumers in the U.S., the biggest market for Japanese exporters, less to spend. U.S. consumer confidence fell in March for a second straight month, a report showed yesterday.
Japanese consumers may not be able to pick up the slack, reports yesterday suggest. Spending by households headed by a salaried worker dropped in February and unemployment rose. The Bank of Japan's Tankan report, due on April 1, may show that confidence among large manufacturers was unchanged in March from December and below the 13-year high marked in September, economists said.
Exports Slow
Japan's exports rose 1.7 percent from a year earlier in February, the slowest pace in more than a year, as shipments of electronic equipment fell. By volume, exports fell 4.2 percent, the biggest drop since December 2001.
Seiko Epson said in January that operating profit, or sales minus the cost of goods sold and administrative expenses, fell 2.9 percent in the three months ended Dec. 31, partly because of falling prices of displays used for mobile phones.
``We've lowered prices to the point where they can't be lowered any more,'' as costs for raw materials rise, Seiji Hanaoka, who takes over as Seiko Epson's president next month, said in an interview on March 10.
Japan pulled out of its fourth recession since 1991 in the final three months of 2004. The economy grew at a 0.5 percent annual pace in the fourth quarter, the first expansion since the first quarter of 2004.
Unemployment
South Korea's production fell 4.6 percent in February to its lowest in almost seven years, a report yesterday showed. Production in Singapore fell 9.8 percent in February, the government said on March 28.
Semiconductor makers may pare worldwide spending this year to $44.1 billion after expansion of production facilities last year resulted in excess capacity, ISuppli Corp., a market researcher, said on March 2. Growth in spending will slow to 1.9 percent from 27.2 percent in 2004, El Segundo, California-based ISuppli said.
Japan's production of machinery and other capital goods fell 3.1 percent, the biggest drop since September, today's report showed. Shipments of capital goods, a gauge of trends in corporate investment, fell 11.4 percent, the biggest drop as measured by the 2000 base year.
Local and overseas orders for Japanese-made machinery is falling because of slower demand in China and the U.S., said Kazuo Mizuno, chief economist at Mitsubishi Securities in Tokyo.
``This suggests that capital spending won't be able to lead the economy,'' he said. Business investment accounted for more than a third of Japan's 2.7 percent expansion in 2004.
Production of electrical machinery fell 4.5 percent from the previous month, and electronic parts and devices fell 1.6 percent, today's report showed. General machinery fell 1.7 percent.
Manufacturers expected to increase production by 0.9 percent this month and by 3.6 percent in April, according to a government survey. From a year earlier, production rose 0.5 percent in February, today's report showed.
Inventories
Production has been lower than forecast in the government survey every month since March 2004. Last month, manufacturers forecast that they would cut production by 0.5 percent in February.
Inventories rose 1.4 percent in February, gaining for the second month, to their highest level since January 2003, the government said. Stockpiles of electronic parts and devices fell 4.5 percent. Shipments fell 1.7 percent.
The drop in electronics stockpiles signals that ``Companies are progressing with cleaning up their inventories and assessing demand,'' said Mitsushige Akino, who oversees the equivalent of $190 million at Ichiyoshi investment Management in Tokyo. ``But shipments have declined slightly as well, and that underscores the declining demand.''
Spending by households headed by a salaried worker dropped 4.1 percent in February, the statistics bureau said yesterday. Unemployment rose to 4.7 percent from a six-year low of 4.5 percent and retail sales fell 2.7 percent, the biggest drop in more than a year.
To contact the reporter on this story: Lily Nonomiya in Tokyo at lnonomiya@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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