Japan’s factory output edged down in July as the highly contagious delta variant of the coronavirus weighed on global supply chains and crimped production of cars, chemicals and electronics.
Overall Industrial output dropped 1.5 percent, following a 6.5-percent gain in June, the economy ministry reported on Tuesday. Economists had forecast a 2.5-percent drop. Manufacturers surveyed in the report said they planned to raise output this month and next.
Separate reports showed strength in the jobs market that may have been aided by temporary hiring associated with the Olympics. The unemployment rate edged down to 2.8 percent and a measure of demand for workers showed job offers outnumbered seekers by the biggest margin since May 2020.
While the spread of the delta variant is exacerbating the global supply chain crunch by disrupting shipping and forcing production halts in Asia, economists said they see the problems as temporary and Japan’s recovery should continue limping along this quarter as vaccination rates climb.
Key insights
“The delta variant will come more under control at some point so ultimately that effect will be temporary,” said economist Takeshi Minami at Norinchukin Research Institute. He added that he’s projecting continued growth for the economy in the third quarter underpinned by exports and relatively resilient consumer spending.
Still, the nation’s production could slow further if the pandemic and chip shortages drag on. Toyota Motor Corp. earlier this month said it will suspend output at almost all its domestic plants for several days in September, forcing a 40-percent cut in production plans.
The latest wave of the virus is hitting manufacturers from multiple directions. At home, Japan is enduring its worst Covid-19 outbreak and a widened state of emergency that could deter shopping somewhat, even though consumers are becoming inured to the situation.
Meanwhile, factory stoppages and lockdowns in places like Vietnam are stopping the flow of essential parts and components. Other disruptions include a shutdown at a key Chinese seaport this month and near-record shipping delays off Los Angeles and Long Beach.
What Bloomberg economics says…
“A surprise tightening in Japan’s labor market in July was driven by demand for workers in the manufacturer sector as well as temporary needs related to the Tokyo Olympics. But details suggest weakness persists. The number of unemployed fell, but the number of people who lost their jobs involuntarily rose,” Yuki Masujima, economist Bloomberg News