Japan industrial output up 5.9 percent in May

[June 29, 2009]  TOKYO (AP) -- Japan's industrial output rose for the third straight month in May, the government said Monday, as manufacturers encouraged by signs of improving demand rushed to replenish inventories.

Industrial production in the world's second-biggest economy increased 5.9 percent from the previous month, matching a rise in April that marked the biggest jump since March 1953. Output continued to fall from a year earlier though the rate of decline eased.

The figures add to evidence that Japanese companies are springing back to life after an unprecedented plunge in global demand dragged the country into its steepest recession since World War II. Massive government stimulus spending around the world, particularly in China, is helping fuel sales of cars, equipment and machinery.

Economists, however, had hoped for slightly better results and warn of waning momentum in the coming months. The figure missed the 6.7 percent growth forecast in a Kyodo news agency market survey.

Industrial production is showing signs of "upward movement," according to the Ministry of Economy, Trade and Industry. Strong gains among companies making transport equipment, electronic parts and steel products contributed to the improvement in output.

Markets responded positively to the news. The benchmark Nikkei 225 stock index was up 0.4 percent at 9,916.13 after morning trading.

The government predicts output will rise 3.1 percent in June and 0.9 percent in July.

Much of the recent growth has been driven by manufacturers rebuilding depleted stockpiles. But a slowdown looks likely as this catalyst fades, said Chiwoong Lee, an economist at Goldman Sachs in Tokyo.

"We expect growth to continue at least until autumn, albeit at a slower pace, but declines are a possibility toward the fiscal year end given the lack of prospects for a full-scale export recovery," Lee said.

Before production began rising in March, it had posted a five-month losing streak as some of Japan's biggest names like Toyota and Sony announced steep cutbacks in production and jobs. A large chunk of Japan's factory capacity remains unused even now, with output down about 30 percent from the same month last year.

The data also showed that inventories in May fell 0.6 percent from the previous month in the fifth straight month of decline, while shipments rose 4.5 percent.

While aggressive cost cutting may have benefited companies, it continues to take a toll on workers.

Amid insecurities about jobs and wages, retail sales fell 2.8 percent in May to extend its losing streak to nine months, the government said in a separate report.

Prices are also falling in the face of weak domestic demand, a troubling trend that threatens to hamper an economic recovery. Last week the government said Japan's key consumer price index tumbled at a record pace in May.

Other key indicators are due out this week. The government will report unemployment and household spending figures Tuesday. The Bank of Japan will release its closely watched "tankan" survey of corporate sentiment on Wednesday.

[Associated Press; By TOMOKO A. HOSAKA]

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