Japanese economy shows growth, US economy risks double-dip

Today's data indicate that the Japanese economy probably continued to grow in the second quarter.

Bloomberg reports that Japan's large manufacturers have become more optimistic.

Japan’s large manufacturers said business conditions improved from three months ago, signaling the nation’s export-led recovery is gaining traction even as Europe’s debt woes roil global financial markets.

Sentiment was 10 points compared with 4.3 points last quarter, the government said in a report in Tokyo today. Companies said they plan to increase spending on plant and equipment by 9.7 percent this fiscal year, compared with the 5.5 percent cutbacks projected three months ago...

Service companies turned optimistic for the first time in 11 quarters. The index for large non-manufacturers was plus 0.9 points, compared with minus 6.3 points the previous three months. Those findings add to evidence that some parts of the domestic economy have been improving after wages rose for a second month in April.

Another report from Japan showed that industrial production rose 1.3 percent in April, revised up from 1.2 percent previously reported.

It is quite possible that the Japanese economy could slow soon, though. Last week, the government had reported that the composite index of leading indicators fell to 101.7 in April from 101.9 in March. Furthermore, according to the Economy Watchers Survey, the diffusion index for current conditions fell to 47.7 in May from 49.8 in April while the diffusion index for future conditions fell to 48.7 from 49.9.

Slower growth ahead is also looking likely for the US economy after the ECRI reported on Friday that its Weekly Leading Index fell to a 44-week low of 123.2 for the week ended 4 June. The index's annualised growth rate fell to -3.5 percent.

In fact, John Hussman thinks that based on his criteria for identifying oncoming recessions, conditions are getting close to pointing to a double-dip recession for the US economy.

For all intents and purposes, unless the credit spreads, the S&P 500, or the yield curve reverse, a further decline in the Purchasing Managers Index to 54 or below would be sufficient to confirm a "double-dip recession." Note that by itself, such a level might not be particularly troublesome. But in concert with the other evidence we observe, it would be sufficient to complete the syndrome of risk factors.