April 1 (Bloomberg) -- Japan’s slide into its worst postwar recession drove manufacturer confidence to a record low and prompted executives to signal more spending and job cuts.

The Bank of Japan’s Tankan index of sentiment among large makers of cars, electronics and other goods slid more than forecast to minus 58 in March from minus 24 in December, the lowest since the survey began in 1974.

Managers said they have too many workers, indicating unemployment already at a three-year high is likely to rise further as companies from Nissan Motor Corp. to Panasonic Corp. cut thousands of jobs. Prime Minister Taro Aso, facing an election this year, is under pressure to prepare a stimulus plan that will alleviate the pain for households and businesses.

“We will see more job cuts,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “The huge excesses of labor, equipment and inventories indicate Japan’s recession will continue for a while.”

The yen traded at 98.80 per dollar at 11:43 a.m. in Tokyo from 99.04 before the report. The Nikkei 225 Stock Average rose 3 percent at the lunch break after the survey showed earnings may grow in the second half of this year. Economists expected large-manufacturer sentiment to slide to minus 55.

Big companies said they plan to cut investment by 6.6 percent in the fiscal year that started today. While that’s less than the 12 percent predicted by analysts, it’s the bleakest projection since 2002. Business spending accounts for 15 percent of the economy and together with exports drove the expansion that ended in October 2007.

Too Many Workers

An index measuring labor excess at large companies rose to 20, the worst since March 2003, when the unemployment rate was at 5.4 percent, close to a postwar high. A positive number indicates companies have too many employees.

The jobless rate jumped to a three-year high of 4.4 percent in February from 4.1 percent and wages dropped for a ninth month, government ministries said yesterday.

“The sharp production cutbacks are probably over but the labor-market adjustment is going to take off from here,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “That’s going to depress the economy further.”

The Organization for Economic Cooperation and Development yesterday projected Japan’s economy will shrink 6.6 percent in 2009, the most since 1945 and sharper than declines of 4.1 percent in the euro area and 4 percent in the U.S.

Weigh on Retailers

Today’s report showed the weakening outlook for consumers may start to weigh on retailers and other service companies, which make up about 70 percent of the economy. Sentiment at the country’s largest non-manufacturers fell to minus 31 from minus 9 previously, the biggest drop since the central bank started that survey in 1983. Economists expected a slide to minus 25.

“Manufacturers were the first to get into the trough and they’ll be the first to get out,” said JPMorgan’s Adachi. “From here on, the question is how much the deterioration will spread.”

Companies said profits will fall 11 percent this business year, easing from an estimated 43.7 percent decline in fiscal 2008. They forecast earnings will slump 33.5 percent in the first half and grow 73.3 percent in the second six months.

The world’s second-largest economy probably shrank at an annual 10.9 percent pace last quarter, according to the median estimate of 17 economists surveyed by Bloomberg News. That would follow a 12.1 percent contraction in the fourth quarter of 2008, the sharpest since 1974.

Urgent Need

“This is a reflection of the severe state of the economy,” Takeo Kawamura, the chief government spokesman, said of the Tankan report. “We urgently need to draw up new stimulus measures.”

Aso, speaking to reporters yesterday before going to the Group of 20 summit in London, said he will compile his next stimulus package by mid-April, without giving details of its size. Since taking office in September, Aso has announced two plans totaling 10 trillion yen ($102 billion).

Japanese exports plunged a record 49.4 percent in February as sales of cars and electronics dried up. The World Trade Organization last month said global commerce will shrink the most since World War II this year.

Automakers cut production by 56 percent in February, the biggest drop since at least 1967. Nissan, forecasting a 265 billion yen loss for the fiscal year that ended yesterday, says it will cut 20,000 jobs in the current business year.

Panasonic, the world’s biggest consumer electronics maker, plans to eliminate 15,000 jobs and predicts its first loss in six years.

“Manufacturers are going to continue to suppress employment,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “Households are going to be the losers this year.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

Last Updated: March 31, 2009 22:45 EDT