Capex rising strongly during Japan’s “recession.”

If there’s one business cycle regularity, it’s that investment tends to fall more sharply than the other components of GDP.  Keep that in mind as you read the latest data dump from Japan:

TOKYO (Reuters) – Japan’s fall into recession between July-September could turn out to be less severe than feared, with new capital expenditure figures out on Monday suggesting revisions will put third quarter economic growth in a more positive light.

The 5.5 percent year-on-year rise in capital expenditure over the third quarter reported on Monday followed a 3.0 percent annual increase in April-June, which could ease concerns about recovery from a sales tax increase earlier this year.

“The revised data will show a smaller contraction in GDP that could be close to zero,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

“Other data on consumer spending, factory output and business investment show these three factors will drive future growth.”

Compared with the previous quarter, capital spending excluding software rose a seasonally adjusted 3.1 percent, versus a 1.5 percent decline in April-June in an encouraging sign of vigorous business investment.

Preliminary data showed the economy contracted an annualized 1.6 percent in July-September, confirming Japan had entered its third recession in the past four years as a sales tax hike in April hurt consumer spending and business investment.

In preliminary GDP data, capital expenditure shrank 0.2 percent, versus the median estimate for 0.9 percent increase.

OK, so capex didn’t fall 0.2%, it rose 3.1%, quarter over quarter.  Just a tiny mistake.

Now about that “recession .  .  . “



20 Responses to “Capex rising strongly during Japan’s “recession.””

  1. Gravatar of Major.Freedom Major.Freedom
    30. November 2014 at 19:12

    When a central bank inflates the money supply, which leads to more money chasing the same goods, we see a higher amount of spending.

    That higher spending does not mean an absence of recession.

    Never reason from a spending change…

  2. Gravatar of benjamin cole benjamin cole
    30. November 2014 at 20:14

    It seems to me that Japan should balance its federal budget, and use aggressive QE to pay down its federal debt. No sales tax increase.

  3. Gravatar of Dan W. Dan W.
    1. December 2014 at 04:46

    Are the Japanese better off now then they were 4 years ago?

  4. Gravatar of benjamin cole benjamin cole
    1. December 2014 at 06:47

    Is Ronald Reagan better off today than four years ago?

  5. Gravatar of ssumner ssumner
    1. December 2014 at 10:19

    Dan, Check out the link at the end of my next post, they are better off in almost every way possible.

  6. Gravatar of Adam Platt Adam Platt
    1. December 2014 at 12:30

    Ironically it was Krugman who pointed out over a year ago that comparing apples to apples (per working-age capita), Japan is not only doing fine, it’s doing significantly better than the United States.

  7. Gravatar of Bob Murphy Bob Murphy
    1. December 2014 at 15:58

    Scott, I still don’t agree with your views on monetary policy, but I have to hand it to you that you have consistently been saying Japan’s not in a recession and it looks like other people are starting to agree with you.

  8. Gravatar of ssumner ssumner
    1. December 2014 at 17:48

    Adam, Good point. In fairness to Krugman Japan is one of the glass half full/half empty stories, but it’s important to try to be consistent when considering policy effectiveness.

    Bob, Thanks—again you show more open-mindedness than most bloggers (probably including me.)

  9. Gravatar of dtoh dtoh
    1. December 2014 at 18:06

    I don’t even know why we are debating whether Japan is in a recession and whether Abenomics (monetary policy) has had an effect.

    Scott has been exactly right on this. (This is so obvious.)

    The interesting question though is not how Japan gets from -0.5% growth to +0.5% growth, but what they can do to get from there to 7% growth. (OK Scott… 3.5%…. assuming you’re right that Japan can only do 1% better than the U.S.)

  10. Gravatar of ssumner ssumner
    2. December 2014 at 09:05

    Even worse, I think trend US growth is now around 1.5%. And I expect Japanese population to keep falling. So catching up (per capita) can occur with Japan growing at 1%. That would still be 1% faster than the US in per capita terms.

  11. Gravatar of Major.Freedom Major.Freedom
    2. December 2014 at 10:09

    Real wages falling fast during Japan’s “non-recession”.

  12. Gravatar of dtoh dtoh
    2. December 2014 at 15:37

    Again you’re incorrectly assuming that demographics is the cause and growth is the effect.

  13. Gravatar of ssumner ssumner
    3. December 2014 at 16:44

    dtoh, You mean correctly assuming, based on the fact that other rich Asian countries with faster growth have exactly the same problem.

    Japan had a high birth rate 50 or 60 years ago, when it was much poorer.

  14. Gravatar of dtoh dtoh
    3. December 2014 at 22:04

    So tell me again, why have Korean birth rates fluctuated with real GDP growth.

    Japan also had a higher growth rate 50 or 60 years ago (except ’41 to ’45).

    I think you need to approach this the way you approach any economic analysis….having kids is a trade off between the costs and the benefits. Expected higher growth lowers the costs (don’t have to support your kids after graduate and can’t find a decent job) and raises the benefits (they have more money to support you in your old age.)

    Certainly the cost of child rearing is more expensive in an affluent society and also in a more urban society, but why would you think expectations don’t impact the decision to have children.

  15. Gravatar of Andy Andy
    3. December 2014 at 23:01

    It’s evident that assessing the effects of QE is very difficult, at least at this point. It seems that in US, UK and Japan QE hasn’t resulted in inflation nor a very big real GDP growth, but the most significant effect has been on unemployment. All three countries have gone through a massive reduction in unemployment. I have to say that this all is quite puzzling to me.

    Then again the Eurozone remains a catastrophe.

  16. Gravatar of Vivian Darkbloom Vivian Darkbloom
    4. December 2014 at 00:46

    “Japan had a high birth rate 50 or 60 years ago, when it was much poorer.”

    Japan legalised abortion in 1949, but the contraceptive pill only became legal in 1999. Perhaps that explains, in part, the higher birth rate 60 years ago. Today, Japanese women, like women nearly everywhere, have much greater ability to make decisions as to whether to have children on financial (and other) considerations.

  17. Gravatar of Nick Nick
    4. December 2014 at 03:47

    I’ve seen a bit of international evidence suggesting higher real growth can lead to higher birth rates, but I have seen a mountain of international evidence supporting the type of concern Vivian just mentioned. I think that when we talk about structural reforms that might increase Japans per capita real growth we are often talking about gender equity in the Japanese workforce. Sadly, I very much doubt any increase in growth achieved through these means will increase the birthrate. Empowering women in Japan with more professional options is a good idea practically and ethically, but I think the direct and negative effect on the birthrate would easily swamp any secondary benefits from increased growth.

  18. Gravatar of dtoh dtoh
    4. December 2014 at 06:07

    People figure out ways to control family size. The pill is still not widely used in Japan. In the 50s, the number of abortions exceeded the number of live births. 100 years ago, infanticide was still common.

  19. Gravatar of Adam Platt Adam Platt
    4. December 2014 at 06:29


    The effect of QE3 was actually pretty straightforward, because it had a stated goal and achieved it pretty efficiently. Namely as much QE as is necessary until unemployment went below 6.5% as long as inflation projections stayed below 2.5%. As I’m sure Scott has pointed out that was a needlessly confusing target, since unemployment and inflation aren’t necessarily inversely correlated. A Nominal GDP target would have been much simpler and more effective.
    In my view the reason it didn’t lead to outsized growth is that we are still far from our pre-crisis NGDP trajectory, which has led to debt overhang and significant dropout from the workforce that unemployment isn’t accounting for. Viewed in that light, Europe’s staggering failure makes sense. While the U.S. is only about 15% below NGDP trend, countries in southern Europe are more like 30-50% off with no end in sight because the ECB thinks there’s nothing it can do aside from low short-term interest rates.

  20. Gravatar of ssumner ssumner
    6. December 2014 at 07:56

    dtoh, You are still missing my point. I never argued that the business cycle had no impact on the birth rate, but the effect is very small. Korea is an extremely prosperous East Asian society–Japan would be very, very fortunate to reach the growth rate of Korea. And yet Korea has a lower birth rate than Japan. There’s almost no hope for economic growth to turn around the Japanese birth rate. If they get up to Korea’s economic growth rate, and their birth rate reaches that of Korea, their birth rate will have dropped. It’s hopeless.

    Japan has a 1.4 birth rate, so does prosperous Germany, which also has a low level of housing costs. Prosperous Singapore and South Korea are at 1.3.

    It’s hopeless. Even if Japan achieves the prosperity of Germany.

    Did I say it was hopeless?

    Andy, QE has certainly boosted inflation in Japan, or at least QE plus the raising of the inflation target. Japan was in deflation before Abenomics. It’s also raised the inflation rate in the US and UK, relative to no QE (i.e the eurozone.) It’s also raised RGDP in both places.

    Vivian, Good points.

    Nick, Good points.

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