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Nikkei on the upcoming Economy Watchers Survey and government stimulus

A bit of an odd article came out of the Nikkei this morning, with the title Rise In Econ Watchers Confidence Could Boost Stocks. The Economy Watchers Survey is released each month by the Cabinet Office, and gauges sentiment amongst service industry workers close to the “front line” in various sectors. The survey itself has taken a beating this year, and last month slid for the fourth month in a row to its lowest levels since late 2001.

Because the EWS is an index and is not measured year-on-year, there are bound to be occasional surprising results, such as when the survey reported a slight uptick in March of this year. Still, the main score has been below the boom-or-bust level of 50 for 15 consecutive months, and with a score of 29.5 registered in June, it’s difficult to imagine anything too much higher than 30 showing up in the July reading.

Speaking of the July reading, it’s not due to be published for another five days, so why the speculation? Here’s what the Nikkei had to say:

The Economy Watchers Survey for August may serve to lift stocks if the latest data, to be published Monday, shows an improvement in the diffusion index for economic conditions.

Perhaps, though many other factors would be at work, and this doesn’t show slam-dunk causality. But what if the survey shows a decline yet again?

But if the gauge marks the fifth consecutive month of decline, calls for government action to stimulate the economy will likely mount.

Ahh. That might be the real message. The last week of August was washed out with rain, which most likely dissuaded consumers from doing a lot of shopping - and 25% of Japan’s department store sales happen in the Tokyo area. Although household spending fell by just 0.5% in July, this July was fighting against one of the stronger months from 2007. Given that the Economy Watchers survey is done from the 25th to the end of each month, right in the middle of all that rain, I don’t see sunshine coming from next week’s figures.

And yes, I’m buying the weather excuse this time.

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