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Cabinet Office: March Economy Watcher’s Index

The Cabinet Office released its Economy Watcher’s Index for March, and the results are optimistic - for the first time in six months. The index, which attempts to measure the strength of domestic demand by surveying approximately 2,000 workers who deal closely with the nation’s customers, climbed to 50.8 points from February’s score of 49.2.

It seems that consumer spending, which accounts for just over half of Japan’s economy, may finally be picking up. On March 30, the Ministry of Internal Affairs and Communications announced that February 2007 household spending in Japan increased by 1.3% compared to February 2006, reaching an average 272,763 yen per household - a figure higher than most economists anticipated. At the same time, sales at Japan’s large shops were up 0.5% year-on-year in February.

Back to the Economy Watcher’s Index. What interests me about the data is that it shows displays of optimism amongst the service and retail industries, yet that optimism has decreased since last month’s report. Manufacturing demonstrates the same pessimism amongst large manufacturers that last week’s Tankan survey revealed.　By industry, the pessimists and optimists broke down as such:

Optimistic about the future:

• Home builders
• Service industries
• Retail
• Food and Drink

All four of the above industries showed a decrease in optimism about the future from last month; all four are connected to consumer spending.

Pessimistic about the future:

• Manufacturers
• Non-manufacturing business

Both of these showed a decrease in optimism about the future from last month; both are connected to capital spending.

Overall, the index’s future outlook portion fell from 52.1 in February to 51.3 in March.

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