Japanese wage growth subdued

Chris Scicluna
Emily Nicol

Japanese wage growth subdued despite stronger overtime earnings
Following some more positive signs in Japan’s labour market numbers over recent months – with the unemployment rate of 2.8% just 0.4ppt above the pre-pandemic level and the job-to-applicant ratio rising to its highest since May 2020 – today’s MHLW labour survey reported a further increase in employment (0.8%Y/Y) in September. The data showed slightly firmer growth in the number of regular jobs (1.1%Y/Y), of which full-time employment increased 0.8%Y/Y and part-time employment was up 1.7%Y/Y. However, despite a further increase in overtime hours worked (3.4%Y/Y), total hours worked (per employee) fell back compared with a year earlier (-0.5%Y/Y). And today’s survey also suggested still very subdued overall labour earnings growth in September. In particular, total wage growth slowed a greater-than-expected 0.4ppt to just 0.2%Y/Y, the second-softest reading since February. And regular wage growth was even softer (0.1%Y/Y) having been flat in August, with special bonus payments down more than 2%Y/Y. So, it was only thanks to increased overtime earnings (4.4Y/Y) that total wage growth didn’t fall back into negative territory. Indeed, given the recent uptick in Japanese inflation, real earnings growth fell 0.6%Y/Y, the most since January.

Japan’s economy watchers much more upbeat
The relaxation of Japan’s state of emergency on 30 September has predictably fed through into greater optimism among Japan’s economy watchers. Certainly, today’s Cabinet Office survey reported an even greater improvement in respondents’ assessment of current business conditions than had been expected, with the headline index rising 13.4pts in October to 55.5, the strongest reading since the start of 2014, and the outlook component pointing to further improvements ahead. Within the detail, while the improvement was widespread, economy watchers reported most improvement in household-related demand, with the relevant index up 15.4pts reflecting sharp rebounds associated with demand for food- and services-related activities, which was assessed to be the strongest in the survey’s near-20-year history. The corporate sector outlook index increased 8.6pts to 51.8, its highest since mid-2016, led by a 10.4pt increase in the non-manufacturing index. In contrast, the improvement in the manufacturing DI was more modest as concerns relating to supply constraints persisted.

BoF survey signals solid services-led growth in France, but German exports fall again
The Bank of France’s latest business survey released last night provided an upbeat view of economic conditions heading towards year-end. With the pre-pandemic level of French GDP having been regained ahead of expectations by the end of Q3, the BoF’s survey suggested that economic activity continues to growth in Q4. In particular, GDP was judged to have been some ½ppt above the pre-pandemic level already last month, with further growth expected in November too. Following growth in economic output of 3.0%Q/Q in Q3, the BoF survey points to respectable growth of about 0.75%Q/Q in Q4 to deliver full-year growth of 6.75%Y/Y in 2021 – probably 1½ppts or more above full-year growth in the euro area. French growth in Q4 appears to be driven again by services activity, which is also now judged to have exceeded its pre-pandemic level. Industrial production, however, was judged to be moving broadly sideways still below the pre-pandemic level, unsurprisingly continuing to be weighed by weakness in the autos and aeronautical subsectors amid supply bottlenecks.

Those supply strains in manufacturing were evident in this morning’s German merchandise trade data, which reported a second successive decline in export values in September. In particular, German export values fell 0.7%M/M in September following a revised drop of 0.8%M/M in August. Given the monthly profile prior to this, export values were up 0.5%Q/Q over Q3 as a whole. But with producer prices rising, the decline in export volumes was sharper in September, down 1.6%M/M and the fifth monthly drop out of the past six, tallying with the declines in manufacturing and mining output of 1.5%M/M in September and 2.4%Q/Q in Q3 as a whole.

Later this morning will bring the German ZEW survey of financial investors, which is expected to tally with yesterday’s more upbeat euro area sentix investor survey, which showed the headline index tick slightly higher in October from the six-month low recorded in October. Elsewhere, ECB President Lagarde is due to give the opening remarks at a ECB forum on banking supervision, while ECB Executive Board member Schnabel and BoE Governor Bailey are due to appear on a panel at a joint Fed, ECB, BoE, BoC conference on diversity.

UK retail sales survey suggests spending in October boosted by early Christmas shopping
After the UK’s official retail sales figures disappointed in September, today’s BRC retail sales monitor suggested improved momentum at the start of the fourth quarter. In particular, total sales rose 1.3%Y/Y in October and were more than 6% higher than in October 2019. Admittedly, like-for-like sales were lower than a year earlier (-0.2%Y/Y), but the pace of decline was softer than in September. Indeed, while sales of furniture and electrical were still hindered by supply constraints, clothing sales were reportedly boosted by increased social events – including Halloween celebrations which had been curtailed by the pandemic in 2020 – while there were also signs that consumers were starting their Christmas shopping early. This tallied with the latest Barclaycard figures, which suggested that over half of surveyed consumers were buying gifts earlier than usual as a result of concerns over shortages of goods and squeezed household budgets ahead. Indeed, almost 40% of consumers continued to find it harder than normal to buy essential items due to empty supermarket shelves. And almost 90% were worried about the impact of rising inflation.

This notwithstanding, Barclaycard figures implied much improved spending on certain services hardest hit by the pandemic, with the release of the long-awaited James Bond film helping to boost spending on entertainment in October back above the pre-pandemic level for the first time. There was also encouraging news for the travel sector, with spending on international trips boosted by the lifting of restrictions – indeed, spending on airlines was down a much softer -28.1% compared with October 2019, following an equivalent drop of almost 50% in September. And public transport also had its smallest drop since February 2020, as more workers returned to commuting by tube, train and bus.

US producer price inflation and business survey due
Ahead of Wednesday’s CPI release, today’s producer price inflation numbers for October will be in focus. These are likely to see further upwards pressure on energy prices, while food prices are likely to be driven higher by supply shortages and delivery challenges. Indeed, our US economist Mike Moran expects producer prices to have risen 0.7%M/M just fractionally below the average so far this year. This would leave the annual PPI rate a touch firmer than the 8.6%Y/Y reading in September. This afternoon will also see the NFIB small business optimism survey for October published. Meanwhile, Chair Powell will give opening remarks at the aforementioned joint central bank conference on diversity.

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