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Economy in Brief

See-saw Economy Watchers Index Is Mixed in November
by Robert Brusca  December 8, 2021

Japan's economy watchers index is a relatively up-to-date assessment of how the economy is doing based on a survey of, well, economy watchers! The indexes for November show a small improvement in the current index and a somewhat larger step back in the expectations reading. Both readings are still strong.

The queue standings of both the current index and the future index are extremely strong. The current index has a 99.2 percentile standing while the future index has a 90.8 percentile standing. Both indexes show that they have each been stronger than their current values less than 10% of the time since January 2002. The current index has only been stronger less than 1% of the time! That marks them as formidable readings.

Sequential strength: the current index
The table looks at changes in the variables over three months, six months and 12 months – as well as at levels monthly. The highlighting feature flashes red when the annualized change on the horizon is weaker than in the previous period. Note that for the current index red values are absent over three months; there is only one over six months and one over 12 months. This tells us that the current index has been both expanding and accelerating broadly. Various sub-indexes that are not distinct categories but rather reflect diverse ways to group and understand the data, provide more detail. Both the headline and six of the nine sub-indexes display 90th percentile standings. In addition, three categories households, eating & drinking places, and services display the strongest values in their respective histories back to January 2002. Despite this, employment, an overall reading, has as an 86.2 percentile reading that is hardly weak; but it is the second lowest standing among current index components (housing is weaker at 54.8 percentile standing- much weaker).

The current index monthly patterns
The current index has only three-monthly values that are not stronger than they were a month ago in October, these are retail, housing, and employment. In October, all components strengthened. And all components had strengthened in September as well. Despite the monthly climb in the headline, there may be some atrophy setting in.

The future index and monthly patterns
The future index has all the same data presentations as the current index. Its month-to-month trends show a broad deceleration, however, with every category including the headline, weaker in November than in October. In October four categories had weakened relative to September while September had showed increases all around. Eating & drinking and services have slowed for two months running as have the readings for all corporations and for manufacturers.

Sequential growth: the future index
While the future index shows signs of slowing in its monthly detail, that is not true for three three-month change readings. They are uniformly stronger than their (annualized) six-month change counterparts. However, over six months the future index experiences a broad slowdown with the six-month change slowing its pace compared to the 12-month change for all components except housing. Compared to its year-ago change, all metrics are higher since a year ago Japan's economy was not faring very well.

The future index components and sub-indexes also show a lot of strength with four indexes having 90th percentile standings. However, employment has a lower, 78th percentile standing. Housing, corporations, and manufacturers have standings in their respective 60th decile range and nonmanufactures slip into the 50th percentile range for their standing. These are also firm-to-solid-to-strong readings/standings; there is nothing weak here, but the future index readings are a cut or two below what we find in the current index.

Summing up
On balance, the difference in the standings for the current and the future index as well as the differences in the pattern for the changes and levels all suggest that Japan has made some great strides but may now be in a slowing process. However, as the job metric standing tells us, the job market in Japan is one of the least repaired areas of the economy based on the sub-indexes in the table.

Heading for Omega?
At this point, I must also wave my hands in the obligatory fashion and mutter about the Omicron variant. As new data come in, it seems it may not be such a fearful thing. But we do not know, and, of course, we do not know what we do not know… Moreover, Delta still circulates. One thing that could happen that might be beneficial is that Omicron could trump Delta because it is more transmissible. Then if Omicron were to become the most widespread, and if it were less dangerous, its spread would actually help to boost various economies by suppressing the more dangerous Delta. Covid might still spread, but it would be a more innocuous disease- at least on this hypothesis. Such a result is completely possible. Delta swooped in and displaced the original virus, but Delta was, in fact, a bit nastier and it made things worse. The ‘natural' (although unfortunately not the sole) path for a virus, if it mutates, is to and become more transmissible and less impactful. That way the virus is able to live in more hosts and the hosts don't die and then they don't in turn kill the virus by their dying. We should watch to see what sort of progression develops from Omicron and monitor what sort of risk Omicron will be…We can watch to see if Omicron is also Omega (the last significant variant- or, at least the last letter in the Greek alphabet).

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