Haver Analytics
Haver Analytics
Japan
| Aug 08 2023

Japan’s Economy Watchers Index Waffles Higher

Japan's economy watchers index moved up to 54.4 in July from 53.6 in June. Six of nine of the component readings improved month-to-month. The sector readings did not improve on the month for eating and drinking places, for services, or for housing.

The future index also improved month-to-month, rising to 54.1 in July from 52.8 in June. Only one component reading in the future index backed off month-to-month; that was for manufacturers.

Over 12 months and over six months, all the point-to-point changes are positive in the current index; however, over three months we see a decline in the headline as well as in five of the components. Over 3 months, there's weakening in households, eating and drinking establishments, services, nonmanufacturers, and in employment overall.

The future index shows similar results. Over 6 months and 12 months, the headline for future readings and components all improved. However, over 3 months the future reading is lower and five of its individual readings are lower as well. The 3-month change in the future readings is lower for households, retailing, services, manufacturers and employment.

However, the economy watchers indexes have come a long way. The survey is a diffusion index so that it's queue standings have substantial meaning. The current index has a 94.1 percentile standing on data back to 2002 and the future index has a 92.5 percentile standing; both of these readings are quite high even though they derive from diffusion values with readings of only 54.

In the current index, the strongest readings are for households, in the services sector, for retailing, for eating and drinking places, and among corporations for nonmanufacturers. The weakest queue standings are in housing, for employment, and for manufacturers.

The future index shows its strongest readings with 90th percentile standings or higher: eating and drinking places, retailing, services, households, nonmanufacturers and corporations overall. The weak readings in the future index are housing, employment and manufacturers. The weakness is in the same sectors as those that lag the most in the current index.

Summing up The overall performance of the economy watchers index in July is good. The current index and the future index both advance. Queue standings are high. However, there is a flaw- the 3-month momentum shows declines for about half of the components and it's enough to create a decline in the headlines for both the current and future assessments. Still, the economy watchers index has across the board gains over 12 months and six months for both the current and future surveys. The question is whether this three-month sluggishness is something new and real or not. Fundamentally, the current and the future indexes show their greatest concerns about employment, the manufacturing sector, and housing. These are important components for the economy and they're having much weaker percentile standings than the other metrics in the table. That's something to keep an eye on, especially because manufacturing is an important driver in the Japanese economy and the key sector in the Tankan survey. Also, the global economy has been exhibiting a good deal of weakness in this sector. Having the weakest ranking readings for employment in both the current and the future reading is also problematic because that certainly is going to imply continuing concerns that will haunt readings for consumer confidence going forward.

  • Robert A. Brusca is Chief Economist of Fact and Opinion Economics, a consulting firm he founded in Manhattan. He has been an economist on Wall Street for over 25 years. He has visited central banking and large institutional clients in over 30 countries in his career as an economist. Mr. Brusca was a Divisional Research Chief at the Federal Reserve Bank of NY (Chief of the International Financial markets Division), a Fed Watcher at Irving Trust and Chief Economist at Nikko Securities International. He is widely quoted and appears in various media.   Mr. Brusca holds an MA and Ph.D. in economics from Michigan State University and a BA in Economics from the University of Michigan. His research pursues his strong interests in non aligned policy economics as well as international economics. FAO Economics’ research targets investors to assist them in making better investment decisions in stocks, bonds and in a variety of international assets. The company does not manage money and has no conflicts in giving economic advice.

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