Japan’s Economy Watchers Index and Outlook Weaken

Japan's economy watchers index slipped to 53.6 in August from 54.4 in July. It's a small slip that still leaves the index with a very high queue standing at its 92nd percentile. The index is lower on balance over three-months, but it's higher over six months and higher by 8.1 points over 12 months. The month-to-month setback seems to be something of minor importance…but momentum is waning.

The future index also slipped back to 51.4 in August from 54.1 in July. That index has a queue standing at its 75.9 percentile, still a firm-to-strong standing but not as strong as the current index. The future index is also weaker over three months and slightly stronger over six months and stronger over 12 months as well, but by just a small amount.

Current index While the current index is lower on the month and it is a minor setback, all components were lower month-to-month except for retailing. There was substantial breadth to the step back in August small though it may be. Many components still have extremely strong rankings. For example, the household sector, retailing, eating & drinking establishments, and services all have queue percentile standings above the 90th percentile. A substantial portion of the economy is still quite strong nonmanufacturers as a group have an 86.6 percentile standing. However, housing has a below-median 39-percentile standing, corporations taken as a whole have a 78-percentile standing, manufacturers have a 64-percentile standing, employment overall has a 55.7 percentile standing not far above its historic median as the median occurs at a rank standing at the 50th percentile.

Future index The future index shows weakness across the board with the headline and all components weaker in August than they were in July. The headline weakens and shows weaker components across the board for three months. Over six months three measures show declines: eating & drinking places, housing, and employment. The rankings in the future survey are generally strong but not as strong as for the current index. The future headline has a 75.9 percentile standing, households, retailing, eating & drinking places, and services all have rankings in their 80th percentile. Housing has the weakest standing at a 37.9 percentile, employment is below its median at a 47.4 percentile standing, corporations is at its 66.4 percentile, manufacturers are at their 60th percentile and nonmanufacturers overall are at their 76th percentile.

On balance, the current reading for the economy watchers index is still quite strong and it is quite strong across most sectors. The labor market, however, doesn't appear to be quite as strong as the readings across sectors. The current standing for employment is only in its 55.7 percentile while the future standing is below its historic median at a 47.4 percentile mark. There could be more vulnerability indicated in this survey than what meets the eye. The future index is also relatively strong as four components have an 80th percentile standing, which is quite good. The only standings in the current and the future survey that are below historic medians are the survey for housing in the current and future index and the reading for employment in the future index.