Is Japanese Economy Strong Yet?

Japanese economy is being said to be strongly recovered. However, many people living in Japan, of course, including me, don't think that they are in such a rising economic situation.

The Yomiuri Shimbun(Feb. 16, 2007)
......According to the report, the increase in real GDP for the last quarter was the highest since the January-March period in 2004, when the annualized growth rate rose 5.1%, compared to that in the previous quarter, and exceeded the average rate of 3.8 percent forecast by seven private research institutions.

Hiroko Ota, state minister in charge of economic and fiscal policy, said at a press conference the same day, "The recovery trend continues to look solid." However, she added, "Consumption is still weak, and I expect the Bank of Japan will continue supporting the economy from the monetary side."

The nominal GDP, which reflects price changes, increased 1.2 percent for the last quarter compared with the previous quarter, and 5 percent at an annualized rate. The quarterly rise was the first increase in the last two quarters. The figures also indicated that the situation in which real growth rates exceed nominal growth rates, resulting from a drop in price levels, had ended after eight successive quarters since the October-December period in 2004.

The GDP increase in the October-December period was pushed up by a 1.1 percent increase in personal consumption, which accounts for more than 50 percent of GDP. It was a significant rise, following a 1.1 percent plunge in the preceding July-September period and an increase for the first time in two quarterly periods. Spending on electrical appliances, such as flat-screen TVs, as well as on accommodation and other leisure-related services was strong, according to the report.

Reading such an article reporting an economic recovery, I don't think that the economy is really recovering, but that the statisticians working for the government see it recovering.

There is a big difference between the views on economy of them and us. Statisticians generally watch an economy through the data and judge it whether it is recovering or stagnant by analyzing many manipulated data set. In contrast, we are generally watching an economy directly with our eyes, or feeling how it works in our everyday life because we can see it only by doing that.

The economy seen by the data might not be the same as that seen in our everyday life. It is because the statisticians usually see it as a whole while we see it as part. It is impossible to see it as a whole without any other statistical measures. And therefore it is sometimes hard for general people to understand what economists say about the situation of the economy. This is not a problem of which view is right, but of our feeling.

In this sense the business cycle we normally say means how we are feeling everyday economic life.