Japan’s industrial production rises 0.8% in August

This morning’s report shows that industrial production rose 0.8% MoM sa in August, still positive but less than the consensus forecast of 1.5%. This is primarily because the manufacturing sector growth has softened as a result of weaker export demand. A further slowdown in industrial output is underway – PMI manufacturing for September has dropped below 50 to 49.3, down from 51.9 in August (new export orders: 44.9). Meanwhile, regarding to domestic demand, the recovery in consumer spending also seems fragile. Retail sales have showed a pullback, slipping -1.7% MoM sa in August, ending the V-shaped recovery seen in the past several months starting from April.

Note that the industrial production index in Japan is chiefly comprised of the output in manufacturing and mining sectors. We believe that the construction sector is still faring well thanks to the post-disaster rebuilding of housing and infrastructures, and construction will be the key segment driving GDP growth and keeping the economy from relapsing into recession. As a high frequency indicator, housing starts have soared in July (16.9% MoM sa or 21.2% YoY), and the August numbers will likely beat the consensus forecast of 4.5% YoY.