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ECONOMY > Economic Indicators

Solid employment data is not translating well into economic growth

  • July 30, 2016
  • , Nikkei , p. 5
  • Translation

Key economic data for June released on July 29 underscore that while employment is improving, spillovers to personal spending remain lackluster. The ratios of job offers to seekers topped 1 for the first time in all prefectures, but personal spending dwindled, which brought weak personal consumption and declining prices into sharp relief. Now attention is being paid to how the Bank of Japan’s additional monetary easing, along with the government’s stimulus, can help boost the reeling economy.

 

The job availability ratio rose 0.01 points on the month to 1.37. It was the fourth straight monthly increase and reached an all-time high for the first time in 24 years and 10 months. The monthly unemployment rate fell 0.1 points to 3.1% and fell to its lowest in 20 years and 11 months.

 

Meanwhile, spending by households of two or more family members dropped 2.2% on the year in real terms. It was the tenth straight monthly decline, excluding the lunar year factor. The core consumer price index, which excludes fresh food, edged down 0.5% on the year.

 

Private research institutes are using these statistics to predict quarterly gross domestic product growth for the three months through June, ahead of the Cabinet Office’s release of data on August 15. The predictions vary from a 0.8% contraction to a 1.6% increase compared with the preceding quarter. On average, GDP is predicted to grow 0.5% on the quarter.

 

Solid employment is not translating into economic growth mainly for two reasons. One is that employment has been expanded mainly in low-wage categories. The percentage of non-regular jobs rose 0.3 points to 37.4%.

 

The other reason is that the improvement in the employment data just mirrors manpower shortages caused by population declines.

 

The government and the BOJ hope to address weak domestic demand together through the introduction of economic stimulus and additional monetary easing. Raising the minimum wage level among non-regular workers will become a key plank in economic measures the cabinet plans to endorse on August 2. These will also include raising wages for daycare and nursing care workers, who are very much in short supply. The government aims to encourage companies and households to spend more through fiscal spending.

 

Meanwhile, the BOJ’s additional easing is not expected to give a direct push to the economy, as it mainly focuses on increased purchases of exchange-traded funds (ETF). The economy is predicted to grow by the upper range of 0% even after factoring in economic measures and additional easing. This is a far off from the government’s goal of 2%. (Abridged)

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