WRAPUP 1-More Japan manufacturing weakness points to downturn

(Repeats to additional subscribers) (For more stories on Japan's economy click [ID:nECONJP])

* July manufacturing contracts for fifth straight month.

* Wage earnings fall as firms cut bonuses

* June housing starts down, 12 months of annual falls.

By Yoko Nishikawa

TOKYO, July 31 (Reuters) - Manufacturing activity in Japan has contracted for a fifth straight month while wage earnings and housing starts both fell from a year earlier, in further evidence that high energy prices and shrinking exports may push Japan into recession.

It was the fifth month in a row in recessionary territory for the Nomura/JMMA Japan Purchasing Managers Index (PMI), issued on Thursday, while wages fell in price adjusted terms by their most in five years as hard-pressed businesses cut back on bonuses.

The data, a day after dismal industrial output figures, saw only a muted reaction in markets as it merely reinforced the prevailing view that the Bank of Japan will keep interest rates at a low 0.5 percent for the rest of year.

Analysts say Japan may soon slip into recession but say it will likely be a shallow trough. [ID:nT76576]

The PMI index gives an early snapshot of the health of manufacturing and another weak month suggests the corporate sector, the key source of growth for the Japanese economy in recent years, is ailing.

"The Japanese manufacturing economy continued to suffer in the face of deteriorating domestic demand and rising cost pressures during the month," Paul Smith, senior economist at Markit, said in a report issued together with the survey.

The PMI index edged up to a seasonally adjusted 47.0 in July from 46.5 in June, a six year low. But the index remained below 50, suggesting a contraction, for the fifth straight month on falling output and new orders. [ID:nTKV003160]

The output index, which reflects industrial production, fell to 44.2 from 44.4 in June, also below 50 for five months in a row and the lowest reading since January 2002.

Government data showed on Wednesday that industrial output in April-June for a second straight quarter, the first such drop in seven years, suggesting that the nation's longest postwar growth cycle is fizzling out as high energy costs curtail business activity. [ID:nT109265]

As firms battle higher costs and with consumers unwilling to pay more at the shops, employees are also feeling the pinch.

Wage earners' total cash earnings fell 0.6 percent in June from a year earlier, the first fall since December, as companies cut bonuses. If price rises are taken into account, their wages fell 2.9 percent, the sharpest annual drop since December 2002. [ID:nTKG003223]

"Corporate profits have declined recently and companies are trying to cut back their capital spending and salaries to their employees. That makes it harder for the households as prices are rising," said Taro Saito, senior economist at NLI Research.

Housing starts, hit hard by a regulatory change a year ago ahead of the broader economic slowdown, fell 16.7 percent in June from a year earlier. This was a smaller fall than the market's expected 18.1 percent drop but was the 12th straight decline.

The PMI survey showed the pricing pressure on businesses from high steel, energy and other commodity prices is not abating.

The input prices index, which measures the costs of buying raw materials, rose to a new series high of 78.5, pointing another month of considerable cost inflation.

"Inflation showed little sign of abating, although the falls in world crude oil prices in recent days may provide some welcome respite for manufacturers next month," Smith said.

In June, Japan's core annual inflation hit a new decade-high of 1.9 percent -- but still lagged well behind a 27-year high of 5.6 percent in wholesale inflation faced by businesses due to surging oil and commodity prices.

A Reuters poll last week showed economists believe Japanese GDP contracted in the second quarter but will pick up slowly in the following July-September quarter. Preliminary GDP data for the April-June quarter will be released on Aug. 13. [ID:nT273170] (Additional reporting by Hideyuki Sano; Editing by Rodney Joyce)