On the surface, Japan's economy should be soaring: just last night, Japan announced that its unemployment rate was 3% in July, better than expected, and the lowest rate since 1995. The number of employed women (28.3 million) and women’s labor participation rate (66.3 percent) rose to a record high in July. According to conventional economic theory, with Japan's unemployment rate below its long-run normal, the slack-free economy should have generous inflation, rising household spending, and vibrant growth. It has none of that, because aside from its unemployment rate, everything else in Japan's economy is a sheer disaster.
As Bloomberg observes, Japan’s economy is struggling to gain momentum, evidenced by slower expansion in gross domestic product than economists forecast in the second quarter. Even as the job market remains tight, the yen’s gains since the start of 2016 are hurting exports, making businesses more reluctant to invest. Meanwhile, consumers are wary of spending because wages are barely rising. This is putting pressure on the Bank of Japan to consider more monetary stimulus at its September meeting. Worse, household spending fell 0.5% in July from a year earlier, its fifth straight month, while retail sales fell 0.2% from a year earlier.
"Overall, consumer spending remains weak as wage growth is dull,” Yoshiki Shinke, an economist at Dai-ichi Life Research Institute in Tokyo, said before the reports were released. “Households have been keeping their purse strings tight since the sales-tax increase in 2014."
And yet, the odd unemployment rate remains a peculiar outlier; in fact some would suggest that Japan is the canary in the coalmine to what the US is going through: a plunging "official" unemployment rate even as the economy slows down year after year.
As it turns out, when one reads between the lines, Japan's 20 year low unemployment rate is merely the latest statistical farce, something we first pointed out last May in "How Japan's Unemployment Rate Dropped Even As 280,000 People Lost Their Jobs." What is really going on is that just like the US, where a major demographic shift is taking place, in Japan a growing number of men in their prime working years are joining the ranks of Japan’s long-term unemployed - unable or unwilling to adapt to a shifting labor market as opportunities continue to shrink in areas like manufacturing.
Ignoring Japan's "famously low" jobless rate of 3%, hidden in the data is the fact that long-term unemployment among men ages 25-44 has jumped five-fold since the early 1990s after Japan’s economic bubble burst. There were 14.7 million male workers in the 25-44 age group in June, the lowest level in 48 years, even amid an overall increase in the workforce, according to the statistics bureau.
For every male loser, there is a female winner, because the surging prime, male unemployment rate contrasts with increasing employment rates for Japanese women. Yet while women are showing more capacity to adapt, they are not necessarily winners either, as they are more likely than men to hold part-time jobs with relatively low pay and fewer benefits than for full-time, regular positions.
Again, this is something we first showed well over a year ago - it appears to have only gained prominence recently, as economists finally do what they are supposed to: look beneath the surface.
According to Bloomberg, though Japan’s jobless rate is the lowest since 1995, the trend of rising unemployment among men in their key working years is a disaster for Abe, who is trying to resolve a stubborn labor shortage. Well, not a labor shortage per se as that would mean at least some real wage inflation, something Japan has not had in years, but a substantially fractured job market.
Still, over a year after we first explained what is truly going on, some economists finally admit is a problem. A "hidden problem."
“This is a hidden problem in Japan’s economy,” said Akane Yamaguchi, an economist at Daiwa Institute of Research, who published a report on the issue in April. “Abe’s government has to fix it as this is the generation supposed to be in the prime of their working life.
Behind this is a further decline in the manufacturing base - the number of manufacturing jobs dropped to 10.3 million in June from 11.7 million a decade ago while the medical, health care and welfare sector added 2.7 million jobs, according to the statistics bureau. Employment in the service sector has risen to 74 percent as of 2014, according to the latest report by the Cabinet Office in December.
It is almost as if Japan is a perfect leading indicator of what lies in the US future. Incidentally, that scenario would be a tragedy for America.
“There aren’t really any training programs offered for them so once they missed the opportunity, it gets very hard for them to find a job,” Yamaguchi said. “This is a vicious cycle.” From Bloomberg:
Bank of Japan researchers wrote about the trend in a report in March, saying unemployment of more than a year is “biased heavily” toward men ages 25 to 44. Analysts found that the number of men without jobs in this age range climbed to 310,000 in 2014, about five times more than in the 1990s. Potential reasons include men’s preference to find work in their same industry and a shift of jobs from manufacturing, the BOJ report showed.
It is, indeed a vicious circle, and one limited not only to the labor market: rising unemployment among these men could exacerbate Japan’s demographic challenges - a rapidly aging population and a stubbornly low birth rate - that are weighing on economic growth. Only 39% of men in their 20s want to get married, a clear contrast with 67 percent three years ago, according to a survey by Meiji Yasuda Life Insurance released in June.
The most significant reason men gave in the survey for staying single? They don’t have enough income to support a family.
Now if only they had BTFD in the Nikkei when Abe launched his idiotic strategy of destroying the Yen and wiping out the middle class just to push equities higher.
In retrospect, perhaps to at least delay Japan's painful demographic death, the BOJ should consider paradropping money and giving every household free cash. If nothing else it may at least spur a temporary spike in births as the local residents encounter a brief glimmer of hope and optimism; without it Japan is literally doomed.