The provisional August data on the purchasing managers' index for the manu-facturing sector supports the view that the economic setback witnessed in the second quarter was only a temporary blip. The overall index improved for the second month running. As well as a favorable production trend, other encour-aging developments include the renewed improvement in the assessment of new orders and the reduction in end product inventory levels. This also creates a positive environment for future production development.
Within this context, industrial production appears likely to increase again in the current quarter. The slump in both industrial production and exports in the second quarter stemmed from very unfavorable developments in May. A partial recovery had already been achieved in June, and the foreign trade data also published this week points towards a continued recovery in real goods exports in July. Although there is some uncertainty surrounding the strength of demand from east Asian trading partners and a chance that the inventory correction process might not quite have reached its conclusion yet, Japanese industry should be able to more than compensate for the slump in the second quarter.