Flash Update: October Japanese Data

Following a 6% GDP surge in Q3, Japan’s economy has continued showing signs of broad improvement in early Q4 data releases. In fact, all but employment data were better than expected, and even the employment data weren’t negative beneath the surface.

Japan’s October unemployment report showed a headline unemployment rate increase from 4.1% in September to 4.5%. This missed estimates of 4.2% and was the first deterioration in three months. But as we’ve written often, the unemployment rate can be a misleading measure of job market health. And that was at work in Japan last month.

A 5% month-over-month increase in job seekers (the largest rise since March) accounted for the bulk of the increasing rate. In fact, employment fell by only -0.2% m/m. That more previously discouraged workers became heartened and sought work isn’t a negative. It’s a function of improved economic conditions and broader perceptions of a better job market among the unemployed. Exhibits 1 and 2 show this.

Exhibit 1: Japanese Unemployed and Employed Persons

Source: Statistics Bureau of Japan, Ministry of Internal Affairs and Communication.

Exhibit 2: Japanese Unemployment Rate

Source: Statistics Bureau of Japan, Ministry of Internal Affairs and Communication.

Beyond unemployment, data were uniformly better than expected. Household spending came in better than expected, at -0.4% y/y versus estimates of -1.5% y/y. Wages rose for the first time in five months, climbing +0.1% and beating estimates of -0.2%. Retail sales leapt +1.9% y/y, sharply accelerating from September’s -1.1% y/y reading—again beating estimates.

Exhibit 3: Japan Retail Trade

Source: Japan Ministry of Economy, Trade and Industry.

Further, October industrial production swung positive, rising +0.4% y/y from a -3.3% y/y decline in September. And it beat estimates of -1.0% y/y. Housing starts were slightly better than estimates, falling at a -5.8% y/y pace—a slower rate of decline than September’s -10.8% dip. And vehicle production and construction orders each rebounded strongly, posting +20.3% and 24.3% year-over-year gains, respectively.

Japan’s economy hasn’t been exactly the picture of strength in the recent past, given the weakness seen immediately before and following March’s earthquake. But recent data do suggest improvement, adding more fuel to ongoing global economic growth.