By Daniel Leussink

TOKYO (Reuters) -Japan’s factories extended expansion in output to a second month in July as motor vehicle production improved, marking a positive start to the third quarter for manufacturers and broader economic activity.

Separate data showed retail sales grew for a fifth straight month in July, adding to hopes that the world’s third-largest economy will benefit from resilience in spending by consumers in the current quarter.

Factory output rose a seasonally adjusted 1.0% in July from a month earlier, official data showed on Wednesday, extending the prior month’s near double-digit surge.

Output was boosted by higher production of passenger cars and trucks and general-purpose machinery to come in better than a 0.5% decrease expected by economists in a Reuters poll.

“There was a big jump in output last month so I had expected a pullback but growth of cars and capital goods pushed up overall production,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Supply disruptions that were there from the spring onwards such as due to China’s lockdowns and semiconductor and parts shortages appear to be easing.”

Production of electronic parts and devices, however, declined a sharp 9.2% largely due to falling output of memory chips, posting their biggest one-month drop since comparable data became available in February 2013.

Output of electronic parts and devices had surged 11.6% in June.

The data comes after Japan’s main automaker Toyota Motor Corp said on Tuesday its global vehicle production for July had fallen 8.6% year-on-year, missing its target for the fourth straight month.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to rise another 5.5% in August and 0.8% in September.

“Given the tendency of firms to issue forecasts that are overly optimistic, we think output will be flat if not outright contract in September, after peaking in August,” said Darren Tay, Japan economist at Capital Economics in a note.

Separate data showed retail sales were stronger than expected, rising 2.4% in July from a year earlier to extend its gains to a fifth straight month.

Retail sales were helped by stronger sales of medicine and toiletries as well as general merchandise.

The rise compared with a median forecast for a 1.9% advance in a Reuters poll.

(Reporting by Daniel Leussink; Editing by Sam Holmes)

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