Raymond Van Der Putten
BNP Paribas
Industrial production declined by 1.5% in August partly, as bad weather disrupted supply chains. Nevertheless, the labour market continued to tighten and the unemployment rate fell to 3.5%. This has pushed up wages. However, household disposable income is 5.5% lower from a year earlier, which is clearly weighing on their expenditure (-6% y/y).
In August, industrial production fell unexpectedly by 1.5% from the previous month. In the July survey, manufacturers had indicated to expect production to rise by 1.5%. The difference is partly due to the very bad August weather, which disrupted supply chains and pushed up inventories of finished goods to a historical high level. Moreover, exports remained sluggish due to the stagnation in world imports. Finally, the impact of the April tax hike might still be felt, but its effect has been waning. Manufacturers polled by the ministry expect production to jump 6.0% in September, which would return production at around the same level as in the first half of the year. A small negative correction is forecast for October (-0.2%).
Despite the fall in production, employment conditions remain very tight. In August, the unemployment rate even declined to 3.5%. An important factor is the retirement of the post-war baby boomers. In August, 90k persons left the labour force. But also job creation remained strong (90K in August), as the government has launched a stimulus programme to neutralise the effect of the VAT hike. In some sectors, such as construction, labour shortages have been reported. This is having an upward effect on salaries.
Since the spring wage round, earnings for regular workers have been rising again. In July, they were 1% higher from a year ago. However, this might be an overestimation of the income situation of Japanese families. According to the Family Income and Expenditure Survey, disposable income of workers’ families was 5.5% lower in real terms in August on the previous year. Against this backdrop, it is not surprising that their expenditure declined by 6%.
The August data were clearly affected by the bad weather. However, abstracting from this effect, the economy is stagnating, due to losses in purchasing power and the sluggish recovery of the world economy.
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