Abe-No-Mucs: Regular Japanese Wages Decline For 17th Consecutive Month
While the one and only controlled vector of Abenomics is the relentless printing of money while monetizing more and more assets, and potentially expanding the universe of eligible securities to include standalone stocks (which the BOJ may have to do if it wishes to expand its QE early in 2014 as consensus now seems convinced), which boosts the stock market even if it sends import costs soaring and ends up pushing Japan's trade deficit to ever greater monthly record highs, the reality is that if Japan wishes to hit its 2% "escape velocity" inflation it will need to achieve wage inflation first and foremost.
It is this uncontrolled variable that Abe and his henchmen have proven completely unable to push higher and last night's release of wage data from Japan's labor ministry confirmed just this.
While on the surface total cash earnings posted the smallest possible monthly increase, or 0.1%, in October - the first rise in 4 months - the reality is that this was driven by overtime pay, which increased by 5.4%. However, the far more important component of worker compensation, regular pay, declined by 0.4% in the month. This was the 17th consecutive decline in core pay and is a glowing testament to just how flawed Abenomics has been since its inception due to its staunch inability to shift employer eagerness to boost pay even in an economy where unemployment is supposedly so much less than in the US and thus worker slack is far less prominent. Turns out that is not the case.
This is how Reuters summarized the data:
Overtime pay, a barometer of strength in corporate activity, rose 5.4 percent in the year to October, up for a seventh straight month, with a 9.8 percent gain in overtime at manufacturers, both logging their biggest increases since May 2012.
However, a slide in regular pay as well as an increase in low-wage part-timers dragged down overall pay, data from the labor ministry showed on Tuesday.
Sluggish wages are discouraging to Prime Minister Shinzo Abe, who has urged firms to raise salaries to create a virtuous cycle of higher incomes and consumption, bigger corporate profits and investment that ultimately would end 15 years of deflation.
Regular pay slipped 0.4 percent, down for the 17th month in a row, in a sign a sustained rise in wages is far from assured.
"Wages remain firm although the pace of gains are not accelerating," a ministry official said.
"We expect wages will be picking up from now on as well, albeit moderately, although a rising number of part-timers puts a lid on overall figures."
Goldman also chimed in on this dire, and most structurally critical, trend for the economy:
Nominal wages back to small positive, pushed up by overtime wages: October cash earnings returned to a small positive growth at +0.1% yoy (September: -0.2%, revised down from preliminary +0.1%), first yoy growth since June. Basic wages, a fixed cost for corporations, continued to decline 0.4% yoy in October (-0.6% yoy in September). Meanwhile, overtime payments rose +5.4% yoy (September: +3.6%), contributing to the overall cash wage growth. Notably, overtime work hour rose strongly in the manufacturing sector (+9.8% yoy; September: +7.6% yoy), where we are seeing recovering production activities. Overtime wage typically accounts for 7% of the total cash wage for the months without summer/winter bonus payments.
The breakdown of total cash earnings shows a pick up to +0.5% yoy for regular employees (September: +0.4%). Their basic wages are somewhat sluggish, falling -0.1% yoy in September (flat in August). It is the overtime wage (+6.1% yoy; September: +4.4% yoy) which has pushed up total cash earnings for regular workers.
On the other hand, total cash earnings for part-time employees continue to decline -0.5% yoy (September: -0.4% yoy), with basic wage also showing no sign of stabilization (basic wage -0.5% yoy in October and September). Meanwhile, part-time workers’ overtime wage also declined -1.0% yoy (September: +5.6% yoy).
How long until the ghost of Obamacare shifts to Japan, and employers there also realize part-time workers can do as good a job as full-timers are a far lower price. As for why basic wages are important and overtime pay is largely noise: it determines 80% of overall wages.
Goldman's bottom line:
Especially important is a steady rise in the basic wage, which accounts for around 80% of overall wages and has a big impact on consumer sentiment and future expected income. While summer bonus payments rose only marginally, businesses seem reluctant to raise basic wages during the fiscal year. There is still time before the winter bonuses, and meanwhile overtime payments are likely to contribute to overall earnings. In our view overtime work hours will likely rise with a pick up in economic activities accompanying the expected acceleration in rush-demand before the consumption tax is raised next spring.
For the staunch defenders of Abenomics we can only say: cheer up - there is always next month.... when it may be different this time.
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