MARCH 4, 2002/BUSINESSWEEK
ECONOMIC TRENDS [by Michael J. Mandel]
A Lesson from Japan...
Post-boom blues can be delayed
With consumer spending strong and productivity soaring, the U.S. seems to
have escaped the worst effects of the popping of the stock market bubble.
But history suggests it may be too soon to relax, since it can take
considerable time for even a steep market decline to be felt in the real
economy.
Consider Japan, where the stock market plummeted by 35% from the end of 1989
to August, 1990. Nevertheless, Japanese consumer spending, productivity
growth, output growth, and business investment stayed strong well into 1991.
It was only then--about 18 months after the financial collapse started--that
the economy slowed sharply.
For example, in the boom years of 1988 and 1989, Japanese consumer spending
rose at a nearly 5% rate. In the 18 months after the bubble popped, consumer
spending continued to rise at a 3.5% rate--slower, but still impressive
(table). Growth of gross domestic product was also quite good, averaging
4.2% over the same period.
Moreover, Japanese productivity, measured as output per worker, rose at a
decent 2.2% clip between the end of 1989 and the middle of 1991. Output per
hour, the productivity measure the U.S. uses, likely rose at an even faster
rate, since hours worked per person fell sharply in this period.
Surprisingly, Japanese economic performance in this post-bubble period was
actually better than the U.S. has shown recently. For example, since the
Standard & Poor's 500-stock index started decisively downward in the summer
of 2000, U.S. productivity has risen at a 1.8% rate, slower than the
Japanese productivity growth in the early 1990s.
That doesn't mean the U.S. is going to fall into a Japan-like stagnation.
But the Japanese example is cautionary: After a bubble pops, good macro
numbers are no guarantee of future performance.
Table: After the Bubble: Japan and the U.S.
6 QUARTERS 6 QUARTERS
BEFORE EQUITY AFTER EQUITY
BUBBLE POPPED* BUBBLE POPPED*
---------------------------
ANNUALIZED RATE OF GROWTH
REAL CONSUMER SPENDING
JAPAN 4.9 3.5
U.S 5.0 3.2
PRODUCTIVITY**
JAPAN 3.8 2.2
U.S 3.1 1.8
* For Japan, measured from the end of the fourth quarter, 1989.
For the U.S., measured from end of the second quarter, 2000.
** Japanese productivity measured as output per worker. U.S. productivity
measured as nonfarm business output per hour.
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Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine
