Further evidence of an economic slowdown reared its ugly head in Japan this week, as new data released by the government ranging from consumer confidence to stock prices added to growing concerns that the recovery in the world's second largest economy may be in jeopardy of slipping away.

 

According to the figures released by the Japanese government, Japan registered a 20 out of a possible 100 on the index of leading indicators during the month of October, down from 33.3 in September. The index of leading indicators is a set of statistics that generally provide clues as to the direction that the economy will take in the near future. Economic expansion is considered likely when the score is greater than 50.

 

Meanwhile, the coincident indicators index -- an important measurement of the current state of the economy -- fell by more than half from September to October, dropping from 36.4 to 11.1. This marked the third month in a row that the coincident indicators index has fallen below the 50-point mark, and the first time Japan has posted such a weak performance in almost 10 years.

 

Following the release of the troubling new data, the Japanese government lowered its overall assessment of the economy from "recovering" to "weakening" for the first time in nearly two years. Many economists are keeping a close eye on how this trend develops, as some interpret the signs as a warning that a recession could be around the corner.

 

A recent slowdown in exports to the US and China has put the brakes on Japan's economic recovery. The Chinese government has taken measures to cool an overheating economy and high oil prices in the U.S. have restrained demand. Some argue that Japanese consumers must start spending to pick up the slack in the economy. But the data issued by the government suggests that household spending fell 2% year-on-year in October, even after adjusted for inflation, marking the second straight month that household spending has weakened.

 

Other indicators give a somewhat mixed report for Japan's economy. For instance, a slump in industrial output for the month of October caught observers off guard. However, a survey of the corporate sector found that capital investment for the July-September quarter was higher than expected.  

 

Third-quarter GDP figures released earlier today seem to further confirm the suspicion that Japan's recovery may be passed its peak. The government's revised figures show that the economy grew by just 0.1 percent from July to September after a slight tightening in the preceding three months. On an annualized basis, GDP increased by 0.2 percent, compared with the initial estimate of 0.3 percent. Economists had expected the revised GDP figures to demonstrate sequential growth of 0.2 or 0.3 percent. Japan has barely averted sliding into recession, as two quarters of contraction technically constitute a recession.