6 December 2002, 08:59  Japan's Leading Index Points to Shrinking Economy

/www.bloomberg.com/ By Daisuke Takato
Tokyo, Dec. 6 (Bloomberg) -- Japan's leading index fell to a level that points to an economic contraction in six months as consumer confidence weakened and share prices fell, suggesting Japan's recovery from recession may be ending.
The leading economic index, which measures job offers, consumer confidence, and other indicators that project future economic performance, fell to 44.4 percent in October from 66.7 percent in September. The index fell below 50, a level that signals a contraction, for the first time in 10 months.
Nintendo Co. and other companies are curbing investment in factories and machinery and firing workers, sapping growth in the world's second-biggest economy. Business spending fell 2 percent in the third quarter, the seventh straight decline, as the economy slowed, a finance ministry report yesterday showed.
``With exports slowing, and nothing happening on the business spending side, there's nothing that will spur growth,'' said Tatsuya Torikoshi, a senior economist at Daiwa Institute of Research. ``The economy will be more or less stagnant.''
Of the nine available components in the leading index, five fell, led by consumer confidence and stock prices.
Japanese household spending declined in October, another report today showed, as companies cut jobs and wages. Spending fell 2.3 percent, seasonally adjusted, following a 5.4 percent increase in September, the government's statistics bureau said.
Japan's economic growth slowed to 0.7 percent in the third quarter from 1 percent in the second. Exports, which grew 5.9 percent in the second quarter -- accounting for half of economic growth -- slowed to a gain of 0.5 percent in the third quarter.
Faltering exports are prompting Japanese companies to slash investment and cut jobs to remain profitable. That pushed unemployment to 5.5 percent in October -- matching last December's record high -- and is hurting consumer spending.
Coincident Index
Nintendo, the world's second-biggest video-game console maker, cut capital spending in the six months ended September to 1.59 billion yen ($12.7 million) from 4.51 billion yen a year earlier. It expects group net profit to fall by a quarter to 80 billion yen in the fiscal year ending March as shoppers slash spending.
The coincident index, which tracks factory production, power use by large manufacturers and department store sales to measure current economic performance, rose to 88.9 percent from 81.8 percent in September, today's Economic and Social Research Institute report showed.
Of the nine available components of the coincident index, eight rose, led by production, shipments and retail sales.

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