August Industrial Production

Despite slowdown in momentum, upbeat projections going forward

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September 30, 2013

  • Masahiko Hashimoto

Summary

◆In Indices of Industrial Production (preliminary; Ministry of Economy, Trade, and Industry [METI]), August industrial production saw the first m/m slide in two months (down 0.7%) and undershot market expectations (down 0.3%). It also posted the first decline in two months on a three-month moving average basis, indicating the underlying trend is slowing. Shipments saw the second gain in a row (up 0.4%), while inventories posted the first slide in three months (down 0.1%).


◆Production was mixed by industry, up m/m in seven industries, down in seven, and flat in one. Among those that saw declines and pulled down overall production were general-purpose/production/business-oriented machinery, chemicals, and transportation equipment.


◆The production forecast survey projects overall production to increase 5.2% m/m in September and 2.5% in October. Production is projected to gain momentum going forward. However, the production forecast survey should be discounted to some extent, as the realization ratio (actual to projection ratio) has been persistently negative.


◆We expect production to maintain the uptrend going forward. Whether production will steadily advance or not will depend on export volume. In this regard, growth in export volume has decelerated due to a slowdown in emerging market economies. However, reflecting economic growth in the US and the effects of a weak yen, the ongoing uptrend in export volume is likely to continue, driving production. Meanwhile, domestic demand will probably accelerate toward end-FY13, lifting overall production. Behind this are increased public works projects following execution of the FY12 supplementary budget, as well as surging demand prior to the consumption tax hike scheduled for April 2014.

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