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Economy in Brief

Japan's Retail Sales on Slippery Slope
by Robert Brusca  March 29, 2016

Not seasonally adjusted Japanese retail sales rose, but after seasonal adjustment they fell and on that basis they are progressively weakening from 12-months to six-months to three-months. All those growth rates on seasonally adjusted data are in fact negative. And on a quarter-to-date basis, two months into the quarter, Japanese seasonally adjusted retail sales are falling at an 11.1% annualized rate in Q1 2016.

Accompanying the drop and deceleration in retail sales is a withering consumer confidence reading. Confidence has eroded to 40.1 in February from 42.5 in January. It is net lower over three-months, six-months and 12-months. The ongoing drop in confidence gives substance to the ongoing drop in retail sales. Consumer attitudes are deteriorating and so is the consumer's propensity to spend.

Unemployment rose in Japan in February, edging up to 3.3% from 3.2%. The 3.3% unemployment rate reverses the one-month drop to 3.2% that was logged in January. Prior to that, the rate had been at 3.3% for two months running. There is no real sense that the unemployment rate is on a new trend move. It has been fluctuating in this range for some months now.

Japan's inflation rate continues to be low in February. The index did rise by 0.3% month-on-month but is up just by 0.3% over 12-months. Japan cannot seem to get into a positive inflation space even after several years of trying and after having launched Abenomics.

Recent Japanese economic readings have been showing weakness. Japanese exports in February fell by 2.4% month-to-month and are accelerating their drop with a -12.9% growth rate over three-months in place. The manufacturing PMI slipped in February to 50.1 from 52.3 in January, its weakest level since June of last year. Japan's service business activity index also fell in February to 51.2 from 52.4 in January to its weakest standing since March 2015. The economy watchers gauge, another service sector barometer, has slipped. But today the small business confidence index showed an unenthusiastic rebound.

On balance, there seems to be an overall loss of momentum in Japan from the factory sector to services to consumer spending and confidence with export flows weakening. This is a pretty full slate of economic weakness. The BOJ does have a relatively new program of negative interest rates in play, but it was not well-received when it was announced. It is not clear that the program is having its intended effect. In Japan, where there is a long tradition of currency usage, the sales of safes have gone up as people have taken to hoarding cash at home to avoid the evils of negative rates at banks. Japan continues to struggle with poor trends in play, few policy levers left to pull and important trade ties to China in place where growth has been faltering. The prognosis is not upbeat.

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