Economy Watchers Index dropped 4.8 points in January, at lowest point since December 2001

February 11, 2008
By Ken Worsley

Each month, the Cabinet Office releases its Economy Watchers Index, a survey measuring sentiment among workers who are particularly sensitive to economic trends. This group includes taxi drivers, hotel staff and restaurant workers. January’s data was released late last week, and the results showed a decline in confidence amongst such workers for the tenth consecutive month.

The Economy Watchers survey is measured as an index with a score above 50 indicating a positive view of the economy and a score below 50 representing a pessimistic overall view. In December, the index stood at 36.6, after having been at 38.8 in November. Although those months saw worryingly large falls of 2.7 and 2.2 points, January’s score dove 4.8 points to 31.8.

As can be seen from the chart, the current downtrend is quite strong. Although January’s results are the lowest seen since December 2001, they remain above the lowest score seen since the survey has been done in its current form, which was the 27.2 that was registered in October 2001 (actually, September-November 2001 were the only three months in which the index dropped below 30).

The Cabinet Office lays things out starkly in its assessment, simply stating that the prices of many daily products are increasing and income is not, and thus consumers are more reluctant to spend in the current environment. Of course, the report mentions higher fuel and energy costs.

Now the question is whether February’s data will show a drop under the 30 point line. I doubt that anyone in Vegas is putting odds on it, but it would be hard to bet against it, especially as the Outlook Index fell yet again, from 37.0 to 35.8 points. On top of that, wages fell an average of 2.7% in December 2007, for their largest fall in three years.

What could this mean in terms of policy? As Edward Hugh points out at Japan Economy Watch:

In the face of the evidence people are now beginning to adjust their positions. Bank of Japan Governor Toshihiko Fukui said today the cycle of profits feeding into wages and consumption that he had consistently argued had supported what has been on some measures Japan’s longest postwar expansion is now “temporarily weakening”, of course we are about to see how long “temporarily” actually means, since on many measures earnings and consumption have never been strong during the expansion phase, so what they will look like during the contraction one is anyone’s guess.

Hopefully any weakening is indeed temporary. As Edward points out, many measures on earnings and consumption never looked like a strong recovery on paper. We have to start wondering how badly such conditions could hurt profits at Japanese firms in 2008, and how that might affect those firms looking for capital to fund overseas expansion.

Filed Under Economic Reports, Economics, Economy Watchers