Japanese Recovery Hits a Snag in July but One Month Is Not a Trend and Doubts about the Consumer Confidence Data

Japan's economy, which was recovering from the two quarter decline in GDP in the second and third quarter of 2004, seems to have hit a snag in July. Retail sales declined 2.25% in July from June. Average spending by workers' households declined by 3.02%. Average living expenditures for workers' households rose 5.52%, but non-living expenditures declined 24.45%. In a breakdown of living expenditures between fundamental and selective, or as we might say, between necessary and discretionary spending, the fundamental spending rose almost 8%, while the selective rose 3%. While most of these data are discouraging, they do not necessarily cast doubt on Japan's recovery, These data are extremely volatile and one should not place too much emphasis on a single month. The first chart showing the index of retail sales and total expenditures of workers' household illustrates the point.

Employment was steady in July, but unemployment rose 5.76% and the unemployment rate rose from 4.2% to 4.4%. Again, the data, even on a seasonally adjusted basis tend to be erratic. However, in the case of employment, an upward trend is discernible, as can be seen in the second chart.

In addition to cautioning one not to put too much reliance on one month's figure, we should note a data problem that has recently arisen in Japan. The government has delayed the publication of its August consumer confidence survey. It appears that the procedures of the market research firm, Shin Joho Center, Inc., that the Bank of Japan has relied upon for it survey have been questioned and found wanting. Shin Joho has apologized for its shortcomings. It is currently verifying that the respondents to its consumer confidence survey have actually been contacted and asked the survey questions! According to the Cabinet's Office's Kisaichi, there is no date set for the release of the July or August surveys.