Japan July Overall Household Spending Up Just 0.1% Y/Y, Core Reading Dips 0.8%; Air Conditioner Demand Strong but Too Hot to Stay Outdoors

–High Wage Hikes amid Labor Shortages Lead to 3rd Straight Rise in Real Average Household Income
–Real Wages Up 0.4% Y/Y in July After Marking 1st Rise in 27 Months in June

By Max Sato

(MaceNews) – Japan’s real household spending posted its first year-over-year rise in three months in July but with a sluggish undertone of rising just 0.1%, as dangerously hot and humid weather kept people indoors while demand for air conditioners and beverages skyrocketed, data released Friday by the Ministry of Internal Affairs and Communications showed.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, dipped 0.8% after rising 1.3% in June for the first increase in 16 months.

The overall spending rise came in much weaker than the median forecast of a 1.0% increase and followed an unexpected 1.8% slump in May and a 0.5% gain, which was the first rise in 14 months.

The increase was led by high spending on a volatile factor of home maintenance and repairs including installations of induction cooktops (too hot to use gas stoves?), as well as on TVs (replacement demand amid Paris Summer Olympics), laptops and domestic package tours (post-pandemic recovery continues). It was largely offset by drops in transport equipment other than automobiles (motorcycles), car parts and gift money.

Compared to the previous month, real average expenditures by households with two or more people plunged a seasonally adjusted 1.7% as the killer heat wave intensified, after edging up 0.1% and falling the previous two months. Record high temperatures in many regions propped up demand for air conditioners, refrigerators and beverages but it was dangerous to stay outdoors. It was much weaker than the median forecast of a 0.6% slip.

The average real income of households with salaried workers rose 5.5% in July for the third straight year-on-year gain after rising 3.1% in June. In nominal terms, the average income grew 8.1% following a 6.5% gain the previous month. This indicates that a high pace of wage growth by Japanese standards is spreading to smaller firms that employ about 70% of the workforce.

Total monthly average cash earnings per regular employee in Japan posted their 31st straight year-on-year rise, up 3.6% in July, after surging 4.5% in June, data released Thursday by the Ministry of Health, Labour and Welfare showed. Base wages rose 2.7% on year in July, marking the 33rd straight gain and the highest growth in nearly three decades, after rising 2.2% in June.

In real terms, average wages edged up 0.4% on year, after marking the first rise in 27 months in June, up 1.1% To calculate real wages, the ministry uses the overall consumer price index minus the historically subdued owners’ equivalent rent, which rose 3.2% on year in July.