Japan Rivals Past Expansions, But Labor Shortage Continues

By some measures, Japan's current run of economic growth shapes up well against booms of years gone by. A quick glance at gross domestic product data shows six straight quarters of expansion, with a seventh on the way, which would be the best performance since 2001.

A cabinet office panel of experts, who examine a complex array of gauges including industrial production and the coincident index to determine business cycles, may in time judge that present upswing is the second-longest of the postwar era, Bloomberg reported.

Should this streak last through September, it will beat the so-called "Izanagi boom", a 57-month expansion through July 1970 that's named after one of two deities who legend has it created the Japanese islands.

But, economic growth is no longer providing significant improvement in compensation for workers.

Three decades after the Izanagi period, the record expansion named after his sister-wife—the goddess Izanami—came with little improvement in pay as deflation held sway in Japan.

The gains that now coincide with the term of Prime Minister Shinzo Abe come with the same caveat.

"This recovery feels a little phony," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute in Tokyo.

"Japan is still facing a lack of demand compared to supply. Wages and inflation are struggling to rise as the nation's potential growth rate remains low."

Average monthly wages per worker rose 0.4% in June, while core consumer prices, the Bank of Japan's preferred gauge of inflation, was 0.5% in July.

Economists say a tight labor market should encourage pay raises as companies seek to secure labor. So far, growth in real wages has been tepid.

The average income of salaried households with two or more people gained 3.5% from a year earlier to ¥598,042 ($5,510), up for a second straight month.

Job Availability at 43-Year High

Job availability improved for a fifth consecutive month to a 43-year high while the unemployment rate remained unchanged in July, government data showed Tuesday, highlighting Japan’s ongoing labor shortage issue, Kyodo reported.

The job availability rate rose to 1.52 positions per job seeker in July, up from 1.51 a month earlier, marking the highest level since February 1974, according to the health, labor and welfare ministry.

The jobless rate stood at 2.8% in July, unchanged from the previous month, according to the internal affairs and communications ministry.

But average monthly household spending, a key indicator of private consumption, fell 0.2% from a year ago to ¥279,197 (2,572), even though the internal affairs ministry maintained that a recovery trend remains in place.

The data painted a mixed picture of the economy, which grew an annualized real 4% in the April-June quarter as consumers and companies stepped up spending. Economists remain skeptical about such high growth levels when driven by domestic demand.

“Companies are facing labor shortages,” said Yusuke Shimoda, senior economist at the Japan Research Institute. “When you look at the improving job-to-applicant ratio, it indicates that there are more job openings not being filled.”

As the government has been encouraging more people, particularly women, to join the workforce, the unemployment rate for women fell 0.2 percentage points to 2.5%, the lowest since 1993. The rate for men rose 0.2% points to 3.1%.

The internal affairs ministry kept its view that employment conditions are improving steadily. The number of unemployed people increased a seasonally adjusted 0.5%, or 10,000, from the previous month to 1.90 million. The country had 65.45 million workers in July, up 140,000, or 0.2%, according to the internal affairs ministry.

The economy has yet to emerge from deflation despite years of Abenomics, the economic policy mix by Prime Minister Shinzo Abe that includes bold monetary easing by the Bank of Japan.

 “We have seen some positive moves in terms of wage growth, albeit at a very moderate pace, and this is helping consumption,” Shimoda said. “That being said, it still lacks strength.”

In July, spending on education, health care and medical services, and housing dropped. Consumers increased spending on transportation and communications services, as well as cloths and shoes, the data showed.