–Home Maintenance, Repairs Also Down; Pent-Up Demand for Travel Wanes
–Eating Out Continues Growing; Tuition, Medical Costs Also Rise on Year
–Real Household Income Posts 16th Straight Y/Y Drop on Elevated Costs but Up in Nominal Terms
By Max Sato
(MaceNews) – Japan’s real household spending posted its 11th straight drop on the year in January, down a worse-than-expected 6.3%, the largest drop in nearly three years and following a 2.5% decline in December, as consumers remain frugal amid high costs and car purchases slipped in the wake of suspended vehicle output over a safety test scandal, data released Friday by the Ministry of Internal Affairs and Communications showed.
On the month, expenditures fell 2.1% for a fourth consecutive decline, after falling 0.5% (revised up from a 0.9% drop) in December, which was also weaker than the median forecast of a 0.5% rise.
Consumers are seeking lower prices for goods and services including prevalent discount mobile phone plans while the Covid-era necessity has simplified ceremonies and lowered their costs.
But at the same time, the sharp drop in overall spending in January was also due to what ministry officials see as temporary factors. People spent less on tours as the government’s economic stimulus measure to subsidize domestic travel that began in October 2022 wound down toward the end of 2023. Mild winter weather also led to lower spending on utilities.
The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell 4.3% on the year in January, smaller than the 6.3% drop in overall spending, after falling 3.4% in December (down 2.5% overall).
Both the government and the Bank of Japan have been providing stimulus to help the economy recover from the pandemic-caused slump and prevent it from slipping back into deflation. Real wages fell for nearly two years in January but the year-over-year decline decelerated as inflation eased.
The key points from the monthly Family Income and Expenditure Survey on Households:
* Real average spending by households with two or more people plunged 6.3% on the year in January after falling 2.5% in December and 2.9% in November. The decline was larger than the median economist forecast of a 4.3% fall (forecasts ranged from 5.6% to 3.2% drops). It was the largest decline since the 6.5% drop in February 2021. Purchases of automobiles slumped after Toyota Motor group firm Daihatsu suspended of all domestic production by over a vehicle safety scandal from late December until mid-February.
* The sharp decrease was also led by lower spending on home maintenance and repairs, a volatile factor, as well as waning pent-up demand for traveling in the absence of government-sponsored discounts.
* Ministry officials do not think the January data reflects a deeper decline in household spending. “The deceleration seems to be caused by temporary factors and we believe the pace of decline is likely to become smaller in coming months,” a ministry official told Mace News. When the negative contributions from transportation and communications including motor vehicles (minus 1.98 percentage points) and utilities (minus 1.04 points) are excluded, the year-on-year decline would be a little more than 3% and closer to recent decreases, he said.
* Many households continued spending less on groceries and prepared food, compared to the earlier phase of the pandemic, when they had cooked more at home and bought takeout food to avoid close contact. By contrast, many people continued spending on eating out while medical costs have risen after the public insurance plan stopped covering Covid-related treatment. Tuitions also posted a high increase in January when the number of students writing entrance exams for private high schools hit record highs in some regions, pushing up overall educational costs.
* Compared to the previous month, real average household spending fell a seasonally adjusted 2.1% in January after decreases of 0.5% (revised up from minus 0.9%) in December, 0.5% (revised from minus 1.0%) in November and 0.2% (revised from minus 0.1%) in October and a 0.2% rise (revised down from plus 0.3%) in September. The latest figure was much weaker than the consensus forecast of a 0.5% rise (forecasts ranged from a 0.8% drop to a 1.5% gain).
* The average real income of households with salaried workers posted the 16th straight year-over-year drop, down 2.1% in January (but up 0.3 in nominal terms), with the pace of decrease slowing from a 7.2% slump in December (down a nominal 4.4%). The main bread-earner’s real income in the average household marked the 13th straight year-over-year drop while the average spouse real income posted the ninth straight drop after recording the first decline in 16 months in May 2023.
Real Wages Drop but at Slower Pace; Nominal Base Wages Post Solid Gain
The pickup in nominal wages in Japan continued for just over two years in January while real wages fell on the year for nearly two years, data released Thursday by the Ministry of Health, Labour and Welfare showed.
Total monthly average cash earnings per regular employee in Japan posted their 25th straight year-on-year rise, up a preliminary 2.0% in January, posting the highest growth since 2.3% in June 2023, after rising 0.8% (revised down from 1.0%) in December, 0.7% in November and 1.5% in October. The recent slower pace was due to a decline in bonuses and other special pay November.
Base wages rose a solid 1.4% on year, marking the 27th straight gain, after rising a revised 1.4% in December. The pace of increase accelerated from 0.5% in March to 0.9% in April and then to 1.7% in May as many firms raised wages to secure workers at the start of fiscal 2023. The key indicator for overall wages has been on a recovery trend.
In real terms, average wages fell a preliminary 0.6% on year in December for the 22nd consecutive drop after falling 2.1% (revised down from a 1.9% decline) in November. To calculate real wages, the ministry uses the overall consumer price index minus the structurally weak owners’ equivalent rent, which rose 2.5% on year in December after rising 3.0% in December.
Consumer inflation in Japan continued easing in January but not so fast as expected as downward pressures from falling subsided energy costs, smaller processed food markups and hotel fee gains were partly offset by a surge in overseas package tour prices due to a statistical distortion and higher auto insurance premiums, data from the Ministry of Internal Affairs and Communication released last month showed.