October 29, 2014, 10:30 JST

Japanese manufacturers are officially in recession!

Japanese manufacturers ended the July-September quarter on a positive note, with production increasing by 2.7% month on month (MoM) in September. 

However, the positive finish does not change the fact that production has declined for two consecutive quarters, putting Japanese manufacturers in a technical recession.

 Source: METI, JMA.

By type of goods, the cuts in production goods were deep in consumer durables and construction goods, both obviously affected by the negative shock of the sales tax hike. The production of consumer durable goods was cut by 5.1% in April-June and 9.4% in July-September. The production of construction goods was cut by 1.8% and then by 5.0% in those two quarters. By industry, the electronic parts and device industry was the only industry that escaped a production cuts in July-September. 

After reducing their production by roughly 4% between April and September, manufacturing only see a modest pick up in the coming two months. They expect production to remain virtually unchanged in October and then modestly expand by 1.0% in November. Considering that they have overestimated their production outlook for the last 18 consecutive months, we should probably expect production to be basically flat in the next two months.   

Industrial productions tend to have a strong correlation with the real GDP growth and the latest result indicates that the growth in the July-September quarter GDP could be barely positive and the outlook for October-December is weak. Judging from the result of industrial production, the Japanese economy seems to be in need to some powerful stimulus to return to the robust growth path it enjoyed in 2013.