Japan August 2007 Machinery Orders

Just a brief note on future orders in the key machinery sector. Machine orders declined by a more-than-expected 7.7 percent in August, after gaining 17 percent the month before, according to data from the Cabinet Office in Tokyo today. This is not quite as bleak a picture as it appears, since in fact overseas orders rose 23% over what had been a rather low level in July. To get some idea of where we are here are the various indexes:



So August was it seems a record month for overseas machinery orders. It now remains to be seen what the picture looked like in September, when we eventually get the data.

Japan Economy Watchers Index September 2007

The Economy Watchers index, which is a gauge of Japanese domestic demand based on a survey of workers who deal with consumers, fell for a sixth consecutive month in September, to 42.9, down from 44.1 in August, according to the Japanese Cabinet Office in Tokyo today (Japanese only). A number less than 50 means pessimists outnumber optimists.



Today's report, which is the first piece of consumer-related data we have for September, suggests Japanese consumer spending may may fail to support growth should exports cool as a result of the global slowdown. Sentiment among consumers, whose spending accounts for more than half of gross domestic product, has been battered by sliding pay, a tax increase and the government's loss of pension records.

As we can see, in the sub indexes sentiment among retailers fell 2.2 points to 40.4 - its lowest level in four years, while confidence at food-related businesses tumbled 7 points to 36.3, the worst since February 2003.

Wages have dropped in seven of eight months this year and have fallen around 10 percent in the past decade. Pay rose 0.1 percent in August, but this is in part explained by workers putting in overtime hours to make up for a production slump caused by an earthquake in the previous month.

Consumer confidence dropped in August to its lowest level in almost three years and stocks also had a downward correction. A withdrawal of tax rebates in June and the government's admission in May that it lost pension records may also be taking a toll on sentiment.

Today's survey showed shopkeepers expect spending to slow in the next two to three months, while the outlook index fell to 46 in September from 46.5 in August.

Sentiment indexes are often hard to read, and need to be thought about in junction with other "real" economic data. But when we put these results, which really do seem to be fairly clear, together with what we already know about weak Japanese earnings (despite the apparently tight Japanese labour market), weak consumption, and the export dependence of the Japanese economy, all the data does seem to be pointing in the same direction: as I suggest here (and see also Claus here), the danger of a recession in Japan is now real and strong.

Feldman on Japan

Over at the Japan Economy and News blog Ken Worsley alerts us to a notification he got from Bloomberg about a recent interview conducted by Tom Keene with Morgan Stanley's Robert Alan Feldman on the political and economic situation in Japan. Here at JEW we have on several occasions applauded Feldman's work on Japan and its ageing problem. For my own part many of my notes on Japan have been directly inspired by Feldman's work.

You can get the interview here.

I am listening to it as I type but in light of the high standards maintained by Tom Keene and Feldman's brilliant insight there is really only one message to take away from this ... go get it!

At a later point I hope that I will be able to write a fuller commentary on what Feldman is actually saying.

September Tankan and August Earnings

The September Tankan index of sentiment at large manufacturers came in with a more or less neutral reading. At 23 it was unchanged from June. Since people were expecting worse this is being generally well received, but beyond that I have little more to say, since we need to await data.

Also out today was the Provisional Report of the Monthly Labour Survey for August 2007, and here I do have rather more to say. As I keep stressing, to understand what is going on in Japan you need to look beyond the headlines to the actual data. And one more time Bloomberg haven't disappointed me.

Unemployment near a nine-year low is beginning to spur wages in the world's second-largest economy. Wages increased 0.1 percent in August, the Labor Ministry said today, the first gain in nine months.

First off it was total cash earnings that were up 0.1% y-o-y, and not real wages which were actually up rather more at 0,4% (I really have no idea how they simply manage to get everything wrong at the level of detail). So here is the chart of monthly changes on a year on year basis.



But... and here comes the really important rub in all of this... if you go and check the time series for the index you will find that August 2006 was a bad month for earnings, since total earnings were down 0,2% on a year earlier in August 2006, so even this meagre increase in August is hard to interpret, and certainly doesn't tell you that "unemployment near a nine-year low is beginning to spur wages" which I think was the point behind the Bloomberg story.

Here is the index itself for what it is worth, although as you can see with bonuses and other items there is a lot of monthly movement and it must be very hard to establish the trend here.All the same, when you look at it in context, August 2007 doesn't seem to me to be a particularly exciting reading.