Japan in recession for a third quarter as US retail sales stagnate

Japan was in a recession even before the March earthquake rattled the blossoming spring cherry trees. The world’s third largest economy, only slightly behind China, saw its GDP shrink by an annualized 1.3 per cent in the quarter to end of June, the third successive quarterly fall.

This was marginally better than forecasts by most economists. However, Japan is firmly in the grip of a recession and the expectation of a bounce in the second half may be more difficult to realize with ongoing disruptions to power supply due to the reduction in capacity following the nuclear station meltdowns.

US retail sales

At the same time S&P futures rallied after the US Commerce Department reported a 0.5 per cent increase in retail sales for July, nevermind that the rise is so small as to be statistically immaterial. The true interpretation is at best continued stagnation for retail sales in the world’s biggest economy.

Is this a slowdown in two of the world’s largest economies or a pointer to a coming deeper depression? Well, you only have to look at the numbers.

Japan is already well stuck into a recession, and it does not look as though as much of the bad news as economists expected got into the Q2 figures, so there may well be more to come.

The US economy may also actually be in a recession. These periods are not declared until many months and sometimes quarters after they start. And the US growth reported so far this year is already so low that it could be revised downwards to a recession.

Forward view

If you project this trend forward it does not look good. There was a global recovery thanks to the Fed’s $16 trillion injection into the world economy post the 2008 financial crisis. Other countries joined in, not least China and Japan.

Now that money is fizzling out. It has not created any employment, although it has stopped a deflationary depression from a banking collapse. It has also created inflation of food and energy prices and a stock market bubble, and an even bigger bubble in the bond markets.

Only after these bubbles have burst and the balance sheets of nations and individuals are reset with much lower debts will the crisis really be over and global economic growth resume. That will take three to five years.

There will be winners and losers among nations in this process. The debtors will come off worse but they will try very hard to take their creditors down with them.