Japan Economics

Economy Watchers Survey (Dec.)

Japan Data Response
Written by Tom Learmouth

The small improvement in the Economy Watchers Survey (EWS) in December suggests household spending was slow to recover from October’s sales tax hike. Both household-related activity and employment conditions edged down slightly, supporting our view that the economy is losing momentum.

Consumer spending to remain subdued this year

  • The small improvement in the Economy Watchers Survey (EWS) in December suggests household spending was slow to recover from October’s sales tax hike. Both household-related activity and employment conditions edged down slightly, supporting our view that the economy is losing momentum.
  • “Current conditions” in the EWS rose from 39.4 to 39.8 in December. (See Chart 1.) That was below the Bloomberg consensus of 41.3 and our own forecast of 40.9. And in stark contrast to after the 2014 sales tax hike, household-related activity – which represents 68% of the index – fell slightly. In annual terms it edged up but still points to private consumption falling around 1% y/y this month. (See Chart 2.)
  • That bolsters our view that the economy made a disappointing start to 2020. What’s more, “employment conditions” fell from 39.6 to 39.5, consistent with employment growth slowing to zero halfway through this year. (See Chart 3.)
  • More positively, “manufacturing conditions” recovered from their 8-year low of 34.8 to 38.7. But that still points to industrial production falling by almost 8% y/y in January following a 6.6% y/y drop in November. (See Chart 4.) That does seem unlikely though. The weakness of industrial production in October and November was partly down to the one-off blow from the sales tax hike, and the December manufacturing PMI points to manufacturing output falling by a more modest 3% per annum. Indeed, firms’ forecasts point to a small rebound in production over the next couple of months. All told though, the survey supports our view that the economy will contract this year.

Chart 1: Economy Watchers Survey

Chart 2: EWS Household-Related Activity
& Private Consumption (Annual Change)

Chart 3: EWS Employment Conditions
& Employment

Chart 4: EWS Manufacturing Conditions
& Industrial Output

Sources: Cabinet Office, Refinitiv, Capital Economics


Tom Learmouth, Japan Economist, +65 6950 5702, tom.learmouth@capitaleconomics.com