Last week’s commentary on Japan focussed on the critical question of GDP mismeasurement. To recap, recent Bank of Japan research has highlighted the importance of looking at alternative indicators to gauge economic activity more accurately. The BoJ utilised data on tax receipts, which rose much more quickly than the Government forecast during FY2014. As a result, the central bank argued that real GDP expanded by 2.4% in FY2014, not the 0.9% contraction reported by the Cabinet Office. The labour market data, which have shown an impressive rise in employment, also cast strong doubts on the reliability of official GDP figures in Japan.
In this context, Monday’s labour market report was timely. The unemployment rate dropped to a new cyclical low of 3.0% in July. Employment in Japan rose 200k to 64.76m, the highest since November 2001. The latest increase follows a big jump in June (470k). In annual terms, employment was up 1.54%. The data is quite volatile, but the 3-month moving average was up 1.12% y/y. This compares with a y/y gain of 0.50% for real GDP in Q2. There can be only two conclusions: productivity is falling, or the real GDP data are wrong. Given that tax receipts climbed more than expected in FY2015, and have continued to rise during the first three months of FY2016, it is likely to be the latter.
Summary
- Labour market report showed another large increase in services employment in July
- Reinforces case for significant GDP mismeasurement
- Rise in working-age participation rate suggests an ageing population is not a problem
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