I had prepared some Japanese charts at the time of the Q3 GDP announcement and for one reason or another failed to complete the analysis. Well here are the charts I was working on:
In my previous post I posted a graph of key US labour market dynamics…the growth in US employment (based on high water mark analysis). We know that there has been a slowdown in labour growth dynamics at the same time as we have had an increase in debt, increasing market volatility and a slowdown in economic growth. But did the financial shock and the long term impact of the unwinding on debt lead to weakening labour market dynamics or did weakening labour market dynamics leverage the impact of the shock and the debt?
If demographics had been stronger then it is possible that the accumulated debt overhang would have been dealt with a long time ago, irrespective of the many policy failures that dogged the economy during the 1990s. In fact employment growth has weakened on a number of measures since the early 1990s.
But if we just look at the differential between changes in employment and changes in the labour force, Japan has in this respect been bursting a gut both in the few years pre the 2008 crisis and post. The differential is in fact at historical highs.
Likewise, when we see many commentators calling for more quantitative easing to support economic growth, we find that the cumulative increase in broad money supply growth (M3) significantly exceeds the growth in nominal GDP:
There does not appear to be a money supply problem, so the problem is perhaps debt and economic capacity. A recent Andrew Smithers blog which suggests that changes to depreciation charges could help increase wage growth also commented on excess capital investment expenditure.
But what I find striking is the fact that if we adjust GDP growth for population growth we find that Japan has not performed that badly compared to the US. Yes we are in a lost decade 2 or 3, but only in the context of debt adjustment and demographic change. It is possible that at an underlying level the economy is faring reasonably well, in a debt hammered demographically challenged context.
If we look at the above chart, before the downturn caused by the increase in consumption tax, GDP on a per capita basis had performed relatively similarly between the US and Japan post 1998: the red line shows the difference in real per capita GDP performance between the US and Japan, a difference which peaked around 1998/1999.
Aside from much needed structural reforms (3rd arrow) it would appear that there is little that quantitative easing could do for the economy that it has not already been doing at a fundamental level. That is unless we consider the impact of government debt on expenditure.
And of course some other charts: