Modest Rebound in Japan’s Economy Watchers Index

The economy watchers index rose to 47.5 in July from 47.0 in June, indicating less contraction on the month. Similarly, the future index improved to 48.3 in July from 47.9 in June, also signaling less deterioration is expected in July compared to June.

The current index has a 50.6 percentile standing on data back to 2003; the future index is slightly weaker at a 46.6 percentile standing. The current index is just above its median mark while the future index is below its median on that same period.

There are no indications of steady net gains being made over 12 months, six months, and three months for either the current or future surveys. That is not reassuring. However, there is persistent deterioration for five current components and five future components. The future declines that register persistent erosion also display net diffusion readings below 50 in July; so do four of the five current readings. Household-related metrics show a preponderance of persistent weakness. In the current survey, it is housing, employment, and eating and drinking places that are persistently weaker from period to period. In the future index, it is also household-related measures that are persistently weak: households overall, retailing, housing, and employment. Consumer-related sectors are weak and weakening.

The economy watchers survey shows momentum weakness as well as weak standings. The current index has four of nine components with standings below their historic medians and seven with diffusion values below 50, indicating contraction. In addition, the ranking of the employment metric at 22.1% is the lowest of all current components and that is disturbing. The future index has five components with rankings below 50% in addition to the headline. Eight of nine components have diffusion values below 50, as well as the headline. The weakest future standing is for housing at a 24-percentile value, but employment is also extremely weak with a 31-percentile standing.

The chart on the economy watchers survey shows that weakness was arrested over the last two months. Still, there is not much of a rebound established and there are still modest-to-weak readings all around. Broader momentum still points lower since the rebound as it stands is only a very localized affair. Despite two months of diffusion improvement, this is still a report that does not offer a lot of encouragement.