September Economy Watchers Survey: Current Conditions DI at 47.0, rising for 5 consecutive months; services grow due to long weekend, while housing drops 5.8 points due to …
In the September Economy Watchers Survey released by the Cabinet Office on October 8, the Current Conditions DI (seasonally adjusted), which indicates the sense of the economy compared to three months ago, was 47.0, up 0.6 points from the previous month. This marks the fifth consecutive month of growth. While service-related sectors such as travel and lodging grew significantly during the September long weekend, housing-related sectors fell by 5.8 points, with many respondents citing rising mortgage interest rates.
The Future Conditions DI, which indicates the outlook for the next two to three months, fell by 0.9 points to 47.4. The Cabinet Office summarized the Economy Watchers’ view as “showing signs of picking up,” and regarding the future, it cited uncertainty over the situation in the Middle East and concerns about natural disasters. This article summarizes the September figures and feedback from the field for those who want to know how the sense of the local economy relates to household and asset management decisions.
Summary of the September Economy Watchers Survey
Here are the key points in three lines. The sense of the local economy has been improving for five consecutive months, pushed up in September by service consumption during the long weekend. On the other hand, housing cooled significantly due to interest rates and high prices, and the corporate side also declined, mainly in manufacturing. The outlook has fallen due to anxiety over the Middle East situation and disasters, making it unclear whether the momentum of improvement will continue.
The Economy Watchers Survey is a monthly survey conducted from the 25th to the end of the month, targeting 2,050 people nationwide in jobs where they can easily feel the pulse of the economy, such as taxi drivers, supermarket managers, inn operators, and public employment office staff. In September, 1,793 people responded. The DI is a score based on their five-level assessment of whether the economy is “getting better” or “getting worse” compared to three months ago.
A DI of 50 is the dividing line between “getting better” and “getting worse.” The September figure of 47.0 indicates that there are still slightly more people who feel it is “getting worse,” but it has risen 6.2 points in five months from 40.8 in April, steadily approaching 50.
The surprise factor is small. Although the rise continued, the margin of increase was 0.6 points, similar to the previous month (0.7 points). What is striking is not the overall rise, but the magnitude of the difference between sectors.
What pushed it up and what pushed it down?
Looking by sector, household-related trends were at 46.8, up 1.3 points. Among them, service-related sectors rose 3.7 points to 50.5, exceeding 50. This is because demand for travel, lodging, and transportation grew during the September long weekend. A tourist-oriented inn in the Koshin-etsu region commented, “September is usually a time when the number of visitors decreases, but this year, thanks to the long weekend, sales grew significantly.”
On the other hand, housing-related sectors fell 5.8 points to 40.3. A housing exhibition center in the Kinki region reported, “Due to rising mortgage interest rates and the high level of construction costs and housing prices, consumers’ cautious stance toward purchasing homes is strengthening.” A housing sales company in Hokkaido also responded that customer purchasing motivation is declining due to rising mortgage interest rates.
Corporate-related trends fell 1.1 points to 47.1. Manufacturing fell 1.5 points, and non-manufacturing fell 1.1 points. A construction company in Shikoku commented, “Rising material prices and labor costs are squeezing profits.” On the other hand, an electrical machinery manufacturer in the Southern Kanto region noted that orders related to AI are strong, and “the benefits are starting to be reflected in employee salaries,” showing a large difference depending on the industry.
As a supplement for young financial institution staff, the strength of the Economy Watchers Survey is that you can understand the “reasons” behind the statistical figures. The reasons for the judgment are written in each individual’s response, and in September, you can read how factors such as prices, interest rates, weather, holidays, and labor shortages are affecting which industries.
Local sentiment appears immediately, while statistical figures appear 1-2 months later
The Economy Watchers Survey is conducted from the 25th to the end of each month and is announced around the 8th of the following month. Since the local sentiment of September is known on October 8, it is characterized by the ability to grasp changes in the economy 1-2 months earlier than official statistics on consumption and employment.
The growth in service consumption during the September long weekend will be confirmed as figures in the September Household Survey and service industry statistics to be released in early November. The cooling of housing-related sectors will appear in statistics on new housing starts and condominium contract rates from September onwards.
Stock and currency markets do not react significantly to the Economy Watchers Survey. For the market, it is positioned as one of the materials to forecast the performance of consumption-related industries.
For households, an improvement in local economic sentiment is a trend that easily leads to increases in bonuses and hourly wages for part-time workers. However, even in the September survey, there were many comments such as “the number of items purchased decreased slightly” and “selective consumption is clear” due to rising prices, and it has not yet reached the point where income growth leads to an increase in the volume of consumption.
How does a 0.5 point increase in mortgage interest rates change the burden on households?
The rise in mortgage interest rates is behind the significant decline in housing-related sectors in the September survey. Let’s calculate for a 40 million yen loan over 35 years with equal principal and interest repayment. If the interest rate is 0.9%, the monthly repayment amount is approximately 111,000 yen. If the interest rate rises to 1.4%, it becomes approximately 120,500 yen, an increase of about 9,500 yen per month, and about 4 million yen in total repayment.
If the interest rate rises to 1.9%, the monthly repayment amount is approximately 130,500 yen, which is about 19,400 yen more per month than at 0.9%, and about 8.15 million yen more in total repayment. As the Bank of Japan continues to raise interest rates, for those buying a home from now on, the repayment burden will change significantly even for the same property.
As mentioned in the comments from housing exhibition centers, construction costs and housing prices are also remaining high. Because both prices and interest rates are rising, more people are postponing purchases, which is pushing down the housing-related DI.
On the other hand, for those who have already borrowed at a fixed interest rate, the rise in interest rates does not affect the repayment amount. For those who have borrowed at a variable interest rate, the timing of the impact will vary depending on the rules for reviewing repayment amounts.
Three scenarios for the future local economy
We consider the future local economy based on the September results in three scenarios.
The scenario where the recovery continues is when the effects of wage increases spread to consumption and the Current Conditions DI approaches 50. A shopping district in Hokkaido commented, “Customers are gradually getting used to high prices, and combined with the movement of wage increases, consumer sentiment is rising.” If year-end sales are strong, it will approach this scenario.
The flat scenario is when the holiday effect runs its course, savings due to high prices continue, and the DI treads water in the high 40s. The fact that the Future Conditions DI fell in September indicates the possibility of this scenario.
The worsening scenario is when fuel and raw material prices rise again due to the deterioration of the situation in the Middle East, and travel restraint due to natural disasters also overlaps. If corporate profits are squeezed and it affects employment and wages, household sentiment will also cool.
What we want to watch is the October Economy Watchers Survey to be released in early November, the September Household Survey, and the movement of retail sales toward year-end sales. In particular, whether the service-related sector can maintain 50 after the long weekend is a benchmark for seeing the momentum of consumption.
How did the Economy Watchers move after holidays and special demand?
Even with seasonal adjustment, the Economy Watchers Survey can fluctuate due to temporary factors such as long weekends or major events. It is not uncommon for the service-related DI to fall in the month following a month where travel and dining out grew due to a long weekend.
In the past, there was an example where the Current Conditions DI rose due to last-minute demand before a consumption tax rate hike, and fell significantly after the hike. Temporary increases in demand need to be viewed in conjunction with the subsequent reaction.
What we can learn from the past is that it is necessary to verify whether the DI that rose due to temporary factors such as long weekends is genuine by looking at the movements from the following month onwards. If the growth in the service-related sector in September continues after October, it will indicate the resilience of consumption, and if it falls immediately, it will mean it was a temporary effect of the long weekend.
When to act and when not to act on local economic figures
Whether to take any action in household or asset management triggered by the results of the Economy Watchers Survey. We show a framework for judgment, but the reader decides in the end.
The condition for doing nothing is if you have already borrowed a mortgage at a fixed interest rate or have no plans to purchase a home. There is no need to change accumulation investments or NISA accumulation based on one month’s local economic figures.
The condition worth considering for a review is if you are planning to purchase a home from now on. There is an option to calculate the repayment amount when interest rates rise by 0.5 or 1 point and decide on a reasonable borrowing amount in advance. While prices are remaining high, if you build a financial plan that anticipates even a rise in interest rates, your judgment will be less likely to waver.
What is easy to fail at is continuing to postpone plans based on the premise of a price drop, saying, “Housing-related sectors are cooling, so let’s wait until prices fall.” As long as construction costs and labor costs continue to rise, prices may not fall immediately even if demand drops. There is also a possibility that interest rates will rise further by waiting.
Things to check before the next Economy Watchers Survey is released
l The type of mortgage interest rate (variable or fixed) and the repayment amount when interest rates rise
l If you plan to buy a home, the upper limit of a reasonable monthly repayment amount
l Plans and budgets for major expenditures toward the end of the year (travel, returning home, replacing home appliances, etc.)
l Whether your employer’s industry falls into the sectors with large movements in the September survey, such as services, manufacturing, or construction
l The schedule for the October Economy Watchers Survey to be released in early November
In the stock market, there is a contrast between service consumption, inbound tourism, and housing-related sectors.
For the stock market, the September Economy Watchers Survey provides material that highlights the contrast between different industries. Service-related sectors such as travel, lodging, transportation, and dining are benefiting from holiday demand and an increase in inbound (foreign) tourists. Some high-end restaurants in Hokkaido have reported that inbound customer visits are exceeding those of domestic customers.
On the other hand, the housing and construction sectors are facing headwinds from both rising interest rates and high material costs. If housing demand cools, the impact will spread to industries such as housing equipment, building materials, and real estate brokerage.
When the public’s perception of the economy improves, I am sometimes asked, “If I buy consumption-related stocks, will they go up as the economy recovers?” I always advise that it is important first to determine whether the growth in consumption is due to temporary factors like long holidays or if it is sustainable and supported by wage increases. If you allocate funds to specific sectors based on temporary increases in demand, you may face a price drop the following month due to a reaction. I believe it is sufficient to simply check how much consumption-related stock is included within a broadly diversified portfolio.
The relationship between the public’s perception of the economy and asset classes
When the public’s perception of the economy improves, stocks tend to be supported, particularly in consumption-related sectors. However, the Economy Watchers Survey is not a statistic that moves the market significantly, so its impact on the stock market as a whole is limited.
For bonds, if the perception of the economy improves and inflation continues, interest rates are likely to rise due to expectations of further Bank of Japan rate hikes, which is a headwind for bond prices.
For REITs, when a cooling housing market coincides with rising interest rates, it creates a headwind for REITs that invest in housing and real estate. Conversely, REITs that invest in hotels and commercial facilities are supported by inbound and domestic travel demand.
For deposits, the principal is protected regardless of the economic situation. While interest has increased slightly due to rising interest rates, it has not kept pace with inflation. Gold is an asset that tends to be bought when uncertainty about the economic outlook increases.
How to interpret the results when the next Economy Watchers Survey is released
The Economy Watchers Survey is released every month. When looking at it next time, checking the following three points will help prevent misinterpretation.
The first is the distance from 50. When the DI exceeds 50, the number of people who feel things have “improved” exceeds those who feel they have “worsened.”The speed at which the remaining 3 points from 47.0 to 50 are filledis a benchmark for observing improvements in economic sentiment.
The second is the difference by sector. Even if the overall figure is the same, the content of economic change differs depending on whether it is driven by households, businesses, or employment. As seen in September, there can be opposite movements in services and housing.
The third is the reason for the judgment. By tracking changes in the reasons cited by respondents, such as “prices,” “interest rates,” “labor shortages,” and “weather,” you can see the shifts in the factors influencing the economy.
Frequently asked questions about the Economy Watchers Survey
Q. Is the economy improving?
A. The perception of the economy compared to three months ago has been improving for five consecutive months. However, the DI is at 47.0, which is below 50, so it is not the case that the majority of people feel things have “improved.”
Q. Are people around me refraining from buying homes?
A. In the September survey, housing exhibition centers and housing sales companies reported that more customers are becoming cautious due to rising interest rates and high price levels. On the other hand, there are also people who are proceeding with purchases after creating financial plans.
Q. Does this affect savings for children’s education expenses?
A. There is no need to change your education savings plan based on one month’s worth of economic sentiment data. However, since prices continue to rise, it is reassuring to review your education expense estimates once a year.
Q. I am worried because I hear talk that “the outlook is worsening.”
A. The September outlook DI fell by 0.9 points, but the level is 47.4, which is higher than the current conditions DI of 47.0. While anxiety over the situation in the Middle East and natural disasters are cited as reasons, the Cabinet Office has summarized that “movements toward a pickup are expected to continue” for the outlook as well.
Summary of the September Economy Watchers Survey
In the September Economy Watchers Survey, the current conditions DI reached 47.0, rising for the fifth consecutive month. While the service sector exceeded 50 due to the long holidays, the housing sector fell by 5.8 points due to rising interest rates and high price levels, leading to a wide gap between sectors.
The outlook DI fell to 47.4, with lingering anxiety over the situation in the Middle East and natural disasters.Whether service consumption can maintain its resilience after the effect of the holidays has passedis the focus from October onwards.
If you are thinking about buying a home, please calculate your repayment amount if interest rates were to rise by 0.5 or 1 percentage point. The caution expressed in the voices of the public reflects the current situation where both interest rates and prices are rising.