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Economy in Brief

Japan's Tertiary Sector Weakens; Has It Gone Viral?
by Robert Brusca  July 13, 2020

Japan's tertiary sector slipped for the fourth month in a row in May as did mining and manufacturing. The three-month, six-month, 12-month sequential averages of the index levels are falling except for construction. Percentage changes on those same timelines also show steady ongoing erosions plus decelerations across the board except for construction.

Percentile standings of the various indexes whether based on year-on-year growth rates or on index levels show very similar pictures: extreme weakness up and down the line. The index level rankings show a more moderate reading for construction where the index level stays in its top 50th percentile, but based on growth rates, construction has only a lower twelfth percentage point percentile standing.

Japan continues to battle extreme economic weakness as the coronavirus struck it in a weakened state. It came in the wake of a trade war between Japan's two main trading partners, the United States and China, in the midst of a global trade slowdown, and in the wake of a long planned, once postponed, and not-to-be postponed again, consumption tax hike in 2019. This triple body-blow to Japan left it reeling to deal with the coronavirus and its various aspects a difficult task especially for a country undergoing a shrinking population.

The chart depicts 12-month changes in the various sector indexes. From the chart, we can see that construction has been in some form of erosion since early-2018. The industrial sector has been steadily losing ground since early-2019. The tertiary sector peaked around mid-2019 and since turned to erosion. But the tertiary index and manufacturing sectors both began to fall very hard early in 2020 quickly as the virus struck first China and then the rest of the world.

Globally growth is still adversely affected. Global infections from the virus continue to spread. News headlines report that there are 13 million infections worldwide. Given global population, that is, however, an infection rate of 0.02%. The infection continues to spread and to kill people- mostly people with compromised immune systems, those with certain so-called preexisting medical problems. Few young people and exceptionally few children are killed by convid-19. Yet, these are the cases the press gravitates to and splashes headlines about in order make us all feel ill at ease. In NYC, 15,600 whose medical histories were known died by late-June. Among those deaths, only 110 were deaths of people without pre-existing medical issues. NYC is a city of 8.8 million. Simply put, the virus does not frequently kill healthy people. The number of healthy people killed was a smaller amount than the number of people usually killed in traffic accidents in a period of five months in the NYC area.

Of course, the virus is not yet done with NYC, although the city has just passed its first 24-hour period of reporting no new infections since the disease broke out there. If the disease returns and ramps up again, the death toll will rise. But the virus has already gotten a lot of the low-hanging fruit. Once it kills a slug of old, infirmed, people and others in nursing homes, it no longer has such a vulnerable population to assail. Even though THAT is not what is meant by herd immunity, it is also part of the way that communities reduce their vulnerability.

It is clear to me (if not to you) that analysis and policy prescriptions are falling too neatly into place along partisan lines. We need to step back and to undertake objective thinking and analysis. In this, I am definitely looking at both parties in the U.S. to make this claim. The motto 'follow science' is being used too freely and used to walk over any opinion or plan that the opposition does not like. The phrase 'follow science' is meant to stifle dissent as in, 'We are following science what are YOU doing?' In fact, science is evolving and not wholly agreed upon. And many things being done in the name of science are not really very smart. Analysis that claims that we will not be back to normal until we find a vaccine, for example, is laughably unscientific. There is never any certainty that a real vaccine will be found. And even if one is mooted soon, because of the expedited protocols and the bum's rush to market, I will not be taking any vaccine cobbled together on short notice. I'll take my chances with the virus (and yes, I am 70 years old- not in the nearly bullet-proof age-group).

Globally there are battles being fought between those in power and those out of power except where there are dictators and there is no dissent. But the analysis of how this disease is percolating, needs to be free of all that and it is not. In the U.S., the various potential paradigms for attacking the virus and blunting its impact on the economy are running right up against the coming deadline for national election. Both sides want to manipulate the economy for its best impact on its desired partisan outcome. And that is very different from what is best for America. In the U.S., a debate is raging between the President who wants schools to reopen and the Speaker, Nancy Pelosi, who says the President is playing with the health of students. But is he? Is he really? Young people face the least risks from the virus. And child experts argue that it is important to get children back to school. So which side of this debate is against child health anyway? Moreover, there are knock-on effects. If children do not go back to school, it will be hard to open up the economy since a parent will have to stay home to tend their children's needs school is not in session. Some teachers are wary saying schools have not taken the right precautions. Some teachers will be in that group that is more vulnerable and they must figure out their own path back...if any. But in my view, schools should be run for the students not for the teachers. Teachers' needs must be provided for too. But teachers are grown up and need to do their jobs and figure out ways to add to the steps that schools take to protect their own health. We should not block the path back for students because of teachers.

For some to say 'follow the science' is really for someone to try to rail-road you and stop discussion on what to do. Science has many different aspects and in following science we must choose what will work best for the country and for most of its citizens and best for our overall health. It is not about what is best for the Democrat- or the Republican-party or any other political pair-up globally. But be aware that that is another complication we face whenever we vet the views of the next 'expert' or of the next 'news report.'

Viewpoint commentaries are the opinions of the author and do not reflect the views of Haver Analytics.
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