By Toru Fujioka
Oct. 29 (Bloomberg) -- Confidence among Japan's small and midsized companies dropped to a decade low as a faltering economy weighed on profits.
Shoko Chukin Bank's index of sentiment fell to 37.6 points this month, the lowest level since October 1998, according to the monthly survey of 1,000 companies by the bank. A number below 50 means pessimists outnumber optimists.
The government last week said Japan has probably entered its first recession in six years after household spending fell and the jobless rate rose in August. Small businesses employ 70 percent of the nation's workforce, making their health critical for consumer spending.
``Small businesses are the ones who suffer most from this recession,'' said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. ``It's hard to predict that consumer spending will pick up anytime soon.''
Sentiment is expected to deteriorate to 36.5 next month, the report said, which would be lowest reading since Shoko Chukin began the survey in February 1985.
The Nikkei 225 Stock Average's 27 percent drop this month hurt sentiment, said Masahiro Eguchi, senior manager of economic research at Shoko Chukin. The benchmark fell to a 26-year low earlier this week.
Shoko Chukin's sentiment index provides an indication of future economic growth, said Masaaki Kanno, chief economist at JPMorgan Chase & Co. in Tokyo. A one-point move in the index translates into a 0.38 percentage point change in the annualized growth rate for gross domestic product, he estimates.
Should the Shoko Chukin index fall below 37, the economy will shrink at least 2 percent on an annualized basis, Kanno said. Japan's GDP contracted 3 percent in the second quarter. The index fell below 40 in Japan's two previous recessions.
``Nothing is good for small and midsized companies,'' Shoko Chukin's Eguchi said. ``The scary part is that this isn't the bottom yet.''
To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
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