Record fall in Japan's industrial production

Japan’s industrial production plunged at a record pace in January, the government said today, as collapsing overseas demand forced manufacturers to keep slashing output and jobs. Household spending and retail sales also fell.

Production at manufacturers tumbled a stunning 10% from the previous month, the largest decline since Tokyo began measuring such data in 1953.

The drop, which comes after a 9.8% decline in December, reflects the unprecedented speed at which Japanese companies have throttled factory lines as exports dry up.

The world’s second-largest economy, which is more dependent than ever on exports to drive growth to offset a shrinking population, is sinking into what officials are calling the worst recession since World War II.

Data earlier this week showed that exports nose-dived 46% in January from a year earlier, giving Japan – once criticised for its trade surplus – a record trade deficit.

Output fell most among makers of cars, electronics and general machinery, according to the Ministry of Economy, Trade and Industry.

Susumu Kato, chief economist at Calyon Capital Markets Asia in Tokyo, said he’s never seen Japanese companies move so quickly.

Output and inventory adjustments have been “very, very fast,” he said, in part due to manufacturers’ greater reliance on temporary contract workers who can be eliminated more easily than full-time employees.

Indeed, major exporters including Toyota Motor Corp and Sony Corp – both of which are forecasting annual losses – have reduced shifts, suspended factory lines and announced thousands of job cuts over the past few months.

The unemployment rate eased to 4.1% in January from a revised 4.3% in December, but economists say the figure is misleading because the lower rate stems from workers simply dropping out from the labour market.

So-called discouraged workers, who have stopped actively looking for a job, are counted in Japanese labour data as part of the “non-working population” instead of the unemployed.

Conditions “are so bad that people are giving up on job searches,” said Goldman Sachs analyst Lee Chiwoong.

A separate report today by the Ministry of Health, Labour and Welfare estimated that nearly 158,000 “non-regular” employees in Japan’s manufacturing sector will have lost their jobs between October and March. The prediction is 26% higher than the ministry’s previous report in January.