In his summary of today’s (disappointing) ADP report, Mark Zandi said that “Business’ number one problem is finding qualified workers. At the current pace of job growth, if sustained, this problem is set to get much worse. These labor shortages will only intensify across all industries and company sizes.” As it turns out, this is just one more way in which the US is gradually becoming like Japan.
In his latest note, SocGen’s Albert Edwards cites a recent story in the Nikkei which reveals just how much worse America’s labor shortage problem could get as US demographics start to approximate those of Japan:
“A record-high 98.0% of newly minted university graduates in Japan have landed jobs at the beginning of this fiscal year in April. The employment rate of job-seeking graduates rose 0.4 percentage point from a year earlier, up for the seventh consecutive year, in an annual survey conducted since 1997 by the labour and education ministries. The employment rate among new high school graduates who sought jobs as of the end of March gained 0.1 percentage point to 98.1%, up for the eighth straight year.”
Now that’s what full employment looks like, and as Edwards further notes, “all this is happening without the help of large tax cuts and repatriated foreign earnings. Japan is enjoying what ostensibly appears to be a healthy, balanced recovery – albeit with the very large caveat that it is dependent on the most ludicrous QE ever seen in a modern economy.”
But why if Japanese labor shortages are so extensive, and with a near record low unemployment rate, does Japan’s wage inflation remain so muted. Well, it actually isn’t: as Edwards also points out, “extreme labor shortages have seen a jump in wage inflation and household incomes are now growing some 3% yoy, dragging consumer spending growth kicking and screaming in its wake.”
Then, on Friday morning Japan reported an absolutely barnburner of a number, confirming that wage inflation in Japan is indeed suddenly rampaging: nominal cash wages soared by 2.1% y/y in May, up from 0.6% in April and more than double the median estimate of 0.9%, matching the fastest increase since 1994. Basic wage growth accelerated to +1.5% yoy (April: +0.9%), and special wages rose 14.6%, lifting the overall wage reading by +0.6 points
As a result, real wage growth increased sharply to +1.3% yoy, from -0.2% in April, after adjusting for a 0.8% yoy rise in May in the CPI excluding imputed rent.
As a Bloomberg commentator said, “all that’s needed now is for Japanese households to start spending and the elusive inflation rise toward 2.0% may actually begin.”
Alas, that’s isn’t happening because in a separate report, Japanese household spending tumbled -3.9%, more than double the -1.5% decline expected, and the biggest drop since August 2016.
As Bloomberg’s Garfield Reynolds writes, “Japanese household thrift looks to be so ingrained as to dash any hopes that consumer demand will be able to spur economic growth and inflation.”
Or, perhaps, none of this is real, and Japan is merely the latest nation to “Chinafy” its data reporting: as Goldman Sachs writes in a note on today’s report, based on the old sample groups, wage growth actually stagnated in May:
As we have noted previously, roughly half of the sample group for the monthly labor statistics was replaced in January 2018, but the official statistics directly compare average wages for old and new sample groups on a yoy basis, possibly creating data distortion.
The Ministry of Health, Labour and Welfare (MHLW) discloses wage growth data for old sample groups (companies still included in the survey) for reference purposes. According to these data, basic wages rose sharply to +0.7% yoy in May, from +0.1% in April. However, this merely represents a return to the trend from October 2017 through March 2018 (basic wages briefly declined sharply in April). Nominal cash wages in May came in at +0.2% yoy on an old sample basis, a slight decline from April (+0.4%).
So which is it: is Japan simply statistically skewing the sample to fabricate and goal seek data it wants, “confirming” Abenomics is working when it isn’t, meanwhile Japan’s population refuses to spend (money which it may not have beyond some computer’s statistical model), or is the alternative more likely: that nothing at all has changed and that after 6 years of Abenomics, all Japan has to show for the biggest monetary experiment in history is a higher stock market, and a central bank which now owns 42% of the country’s bonds, and amount roughly equivalent to Japan’s GDP…
… and will soon run out of bonds to buy…
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