Economy in Brief: August 2022

Real GDP in Japan rose by 2.2% at an annual rate in the second quarter of 2022. This is a marked acceleration from the 0.1% rise in the first quarter of 2022 but slower than the 4% recovery pace in the fourth quarter of 2021 after GDP declined in the third quarter of 2021.

Quarter-to-quarter trends in real GDP components Private sector consumption was up at a sharp 4.6% in Q2 2022 while public consumption accelerated to a 2.2% annualized rate from 1.7% the quarter before.

Gross fixed investment posted positive growth gaining at a 3.4% annualized rate in Q2, the first quarterly increase since the second quarter of 2021.

Housing extends a string of quarterly declines as residential investment posted a -7.2% annual rate in Q2, an accelerated pace from a -5.6% rate in Q1 and -5.2% in Q4 2021.

Exports continue to show increases, rising at a 3.7% rate in the second quarter, up at about the same pace (3.6%) in the first quarter. Imports slowed with 2.7% pace after a 14.8% pace in the first quarter.

Year-over-year trends in real GDP Year-over-year trends show slight change in the pace of GDP as it grew by 1% over four quarters compared to 0.9% on that same basis in the first quarter. Private consumption has accelerated steadily from a year-over-year rate of 0.4% in the third quarter of 2021 to 1.3% pace in the fourth quarter of 2021 to 2.2% pace in the first quarter of this year and 3% over four quarters in the second quarter. By comparison, public consumption continues to be expansionary but growing only by 1.7% year-over-year and without any clear trend.

Gross capital formation continues to be under pressure showing a 3.5% drop over four quarters in Q2 2022 compared with a 3.9% drop logged in Q1. Capital spending shows declines over four quarters for each of the last four quarters with the last gain being a 1% rise in the second quarter of 2021. Spending on plant & equipment dropped in Q2 logging a 0.8% decline over four quarters; its last increase was a gain of 1.1% over 4 quarters in Q3 2021.

Domestic demand in Japan has grown by 1.2% over four quarters in Q2 2022 and had advanced by 1.4% over four quarters in the first quarter of the year. Both of those represent steps up from the previous two quarters; i.e., Q3 2021 and Q4 2021.

Japan indicators in 2022 Japan's economy continues to struggle. In June, retail sales fell by 1.1% month-to-month while rising by only 1.5% over 12 months. Employment in Japan rose by 0.2% in June and had gained only 0.3% over 12 months. Japan's leading economic index in June fell for the second month in a row; that indicator is down by 1.4% over 12 months. The year-over-year drop in the LEI sits in the 43rd percentile of its historic queue of data; evaluated on its level, instead of its growth rate, it has a 68-percentile standing. That's better but still not very good. However, one of the brighter notes on Japan's economy is its economy watchers index with the current index in June at a 91-percentile standing and looking solid.

The yen The yen and has been weakening, improving Japan competitiveness in international trade while raising costs to consumers for imported goods- especially energy. Yet, Japan's exports still appear to be engulfed in a protracted slowdown: they have slowed down from a 27.2% pace over four quarters in the second quarter of 2021, to 15.7% pace in the third quarter of that year, and to a 6% pace in the fourth quarter of that year. In the first quarter of 2022 exports grew by 4.6% over four quarters while in the second quarter they were up by only 2.5% over four quarters. Exports have not responded to the weakness in the yen at least not on a year-over-year basis.

Year-over-year trend in imports show some general slowing from an 11.4% gain over four quarters in the third quarter of 2021 to 5.6% gain in the fourth quarter that improved with 7.3% gain in the first quarter of 2022, but they have slipped back to 3.5% gain in the second quarter of 2022.

The European Monetary Union (EMU) posted a 0.7% increase for industrial output in June, following a 2.1% increase in May. Industrial output is solid with a 2.6% growth rate over 12 months, 2.3% growth rate over six months and a 13.8% annualized rate of growth over three months. The tracking for manufacturing growth alone generally follows the same pattern with a 1% gain in June and 11.9% annualized rate over three months.

The June report completes data for the second quarter. In the second quarter, total output is up at a 4.5% annual rate; manufacturing output is up at a 2.3% annual rate. Output gains by sector are led by consumer durables at a 9.4% annualized rate. Consumer nondurables output rises at a 4.9% pace, capital goods output has come back strongly with a 5.6% annual rate increase, and intermediate goods output showed a decline at a 1.4% annualized rate.

All the sectors show increases in output compared to the pre COVID level of output in January 2020. Overall output is up 2.7% with manufacturing output up by 2.5% over that span. Consumer durables has the largest gain at 6.3% followed by consumer nondurables at 5.6%. The smallest gain is from the capital goods sector with a rise of 0.9%. Intermediate goods output is up by 2.2% over the span.

The manufacturing and industrial output performance numbers do not fit well with the manufacturing PMI as the manufacturing PMI show reduced activity in April, May, and June. In all three months manufacturing output progressed from the flat in April to up 1.8% in May and up 1.0% month-to-month in June. However, at a PMI diffusion value of 52, the manufacturing PMI gauge for the EMU does show expansion. But it doesn't show strength; it is showing persistent cooling.