Economy in Brief: January 2022

Japan’s LEI rose in November to 103 from 101.5. This is the second increase in a row. As the table shows the LEI took a one-point tumble from 101.2 in August, to 100.2 in September then it rose to 101.5 in October and now to 103.0. This is a nice string of increases. But the steady gains still leave the LEI index below its level of July 2021 when it stood at 103.8. In August of 2021, the index fell sharply. But it has recovered steadily since then.

The table shows the LEI in several different guises and settings along with other economic metrics on Japan’s economy all on the same timelines.

Looking at the increases in these metrics from January of 2020 shows the LEI is up by 14.1%. The METI industry index is lower by 1.4% on this same timeline. The Teikoku indices are uneven with three sectors still below their January 2020 levels (retail, services, and construction) but with wholesaling and manufacturing higher on balance. The Teikoku metrics are quite different from the economy-watcher metrics that show solid and strong gains on this same timeline for all its sectors- each showing a double-digit gain since January of 2020. The Teikoku readings lag the LEI and the Economy-watcher readings.

The LEI has an index level in November with an 88.8 percentile standing. This contrasts to its 76.9 percentile standing when ranked and evaluated on its 12-month growth on the same period. Those differences in rankings are not huge but for an index like the LEI that is based on underlying economic variables that grow over time, the growth metric is more important and more telling than the index level standing. The more meaningful LEI ranking is the lower growth rate ranking.

Compare the LEI ranking to the rankings of the Teikoku and economy-watcher indices. The index level ranking shows economy-watcher indices across the board are high and strong with rankings in their respective 90th percentiles. However, the level ranking for the Teikoku sectors are in the 36 percentile to 65th percentile range, a much lower habitat.

The growth rate rankings over the last 12-months show somewhat more similar rankings. The economy-watcher indices are in a range from the 83rd percentile to the 96th percentile. The Teikoku rankings on growth rates span a ranking of the 49.7th percentile to the 83rd percentile for services and an 81st percentile for manufacturing.

I contrast to these comparisons the METI industrial index has a 20th percentile index level standing and a 76.9 percentile growth ranking. The METI index level reading is weaker than anything else but in growth terms it is on board with the other surveys

There is no truly best index. The economy watcher indices are evaluations of economic onlookers in various sectors. Teikoku is more of a traditional survey as is the METI index. However, all surveys show ongoing improvement over the last three months and show a falloff in August from July as we saw in the LEI. We seem to be getting the same signals from all the surveys on the economy; there is just not one uniform way to map them into a single current standing. Every picture tells a story; every angle tells a different story.

The indices are clear about a few things. Japan’s economy is progressing. On its rate of progress there is some disagreement, but it is progressing. Current evaluations from the LEI, Teikoku, METI, and economy-watchers indices show an ongoing economic improvement and a solid-to-strong standing for the economy itself. At this point it is hard to put a finer point on it than that.

The EMU economic sentiment index fell to 115.3 in December from 117.6 in November. EMU-wide consumer confidence back-tracked, retailing backtracked and services backtracked. Rising month-to-month was the industrial sector index and construction. The sectors stepping back in December are those sectors that are relatively more impacted by interpersonal transaction activity an important point with the virus spreading in Europe.

Among the 18 early-reporting EMU members in the table, 14 reported declines and only four showed index improvement in December (all small economics: Cyprus, Slovenia, Latvia, and Lithuania). That compares to seven countries reporting declines in November and eight reporting declines in October.

The headline is the weakest since May of last year. March 2021 was the month in which the EMU sentiment index made its jump to the 100 mark, and it improved to 110 by the next month. So, the comparison to the May 2021 level is to an intermediate step up as the economy in Europe dug out from the severe covid weakness. From May 2021 onward, the index improved; October 2021 was the high reading at 118.6. During this phase, improvements were incremental. The headline EMU index has now declined from this post-covid peak for two-months running.