By Max Sato
(MaceNews) – Japan’s household spending in December suffered the first year-on-year drop in three months, albeit modest, as more people turned cautious about eating out and traveling outside their areas, data released Friday by the Ministry of Internal Affairs and Communications showed.
But the key indicator of private consumption marked the second straight gain in the final quarter of the pandemic-hit 2020 from the previous three-month period, supporting economist forecasts that the gross domestic product continued growing in Q4 after recovering about half of April-June’s plunge in the July-September quarter.
In the near term, consumer spending is expected to fall in the first quarter of 2021 as the government this week extended a state of emergency in Tokyo and nine other prefectures for another month until early March, urging people to stay home as much as possible and asking bars and restaurants to close by 8 p.m.
The key points from the monthly Family Income and Expenditure Survey on Households:
- Real average spending by households with two or more people slipped 0.6% on year in December after rising 1.1% in November and showing the first year-on-year rise in 13 months in October. The key indicator of consumption came in firmer than the median economist forecast of a 2.4% drop. The average spending pattern was unchanged, more on goods and less on services amid rising new coronavirus cases.
- The slight decline was led by lower spending on dining out, traveling and telecommunications. Expenditures on home renovations, appliances and food remained solid as some people continued telecommuting and cooking more at home during the pandemic. This and other pieces of data also showed that demand for packaged traditional Japanese New Year’s food were strong toward the end of the year.
- On the month, real average household spending edged up 0.9% in December, the first m/m rise in two months after -1.8% in November and +2.1% in October.
- To gauge private consumption in the Q4 GDP data, due on Feb. 15, household spending rose a seasonally adjusted 4.3% on quarter in the October-December quarter, marking the second consecutive q/q gain after rising 3.6% in Q3 and falling 4.5% in Q2 (previous figures were revised). This and other data indicate Q4 GDP maintained growth, backed by solid consumption (mostly on goods), business investment and exports.
- On year, spending in the October-December also rose 0.7%, the first y/y increase in five quarters after falling 8.3% in July-September.
- For the whole of 2020, real average household spending slumped 5.3% after rising 0.9% in 2019, which was the first annual increase in six years.
- As the economic recovery remained wobbly, the average real income of households with salaried workers recorded the first year-on-year decrease December, down 1.3%, after showing a modest 0.6% rise in November. The survey by the Keidanren business lobby showed in December that the weighted average of year-end bonuses paid by large companies were expected to drop 9%, the first annual decline in eight years.
- Industry data released last month showed that domestic department store sales slumped 13.7% in December for the 16th straight month of year-on-year decline amid surging new coronavirus cases, although the pace of decrease eased slightly from -14.3% in November. On the upside, sales of cooking appliances, household goods and beds as well as packaged traditional New Year’s food were strong as many people are spending more time at home, compared to a year earlier. High-income earners continued buying art pieces, jewelry and brand-name watches.
PM Suga Struggles Amid Pandemic
The government came under fire for being too slow to suspend, in late November, its subsidy program to promote tourism with hefty discounts on hotels and transportation. It has imposed restrictions on some economic activity but has never imposed a strict lockdown on any cities or regions during the pandemic.
In the face of growing economic uncertainty and voter discontent with government handling of the pandemic, the approval rating of the cabinet of Prime Minister Yoshihide Suga has been sliding, promoting chatter in Japanese media that senior members of his Liberal Democratic Party are concerned that the ruling party may lose seats in the next general elections, which must be held 30 days before the four-year term of the lower house of parliament expires on Oct. 21.
LDP leaders probably wish to avoid calling an election too close to the deadline as such a timing often leaves the impression that the Prime Minster is being forced to dissolve the lower house, and has led to a defeat for ruling parties in the past.
The earliest possible timing for Suga calling general elections would be in late March or early April, just after parliament approves the fiscal 2021 budget. If later, Suga might pick a date in July to coincide with prefectural elections for the Tokyo Metropolitan Assembly. Or he might wait until after the Tokyo Olympics (July 23- Aug. 8) and Paralympics (Aug. 24-Sept. 5), if those events take place as scheduled.
As Chief Cabinet Secretary to Prime Minister Shinzo Abe from December 2012 to September 2020, Suga won his reputation as the key coordinator in policymaking. But since he replaced Abe last September, he hasn’t been able to show strong leadership with any clear vision as if there were no one to fill his shoes as the top aide. Suga is serving the remainder of Abe’s third three-year term as the head of the LDP.
Some shop owners are openly refusing to obey the early-close call, saying government compensation is not enough to keep paying for rental and labor costs amid slower business. Many people are still commuting to work on packed trains daily, making it hard to maintain social distance and trace any coronavirus infection routes. Public outrage also simmered as Suga called for self-help and community support before seeking government welfare at a time when more people are struggling to stay above the poverty line.
Upon government request, some large companies have been able to keep most employees work from home, using their communications networks, since the early stage of the pandemic. However, small businesses, which account for over 99% of the total number of companies in Japan and employ nearly 70% of the workforce, are struggling to digitalize and automate their operations due to a lack of funding and resources.
Small factories, many of them the key suppliers of precision parts and devices to top automakers and electronic firms, cannot operate without skilled workers on site. Temporary and non-regular workers are also under pressure to report to work in person, worrying that they will lose jobs otherwise.
Slowdown Ahead
Economists on average forecast Japan’s gross domestic product to show a 3.73% annualized growth in the last quarter of 2020 (official data due on Feb. 15), slowing from a 22.9% rebound in July-September after a 29.2% slump in April-June, according to the latest survey of 36 economists in the ESP Forecast conducted by the Japan Center for Economic Research from Dec. 25 to Jan. 7.
Sumitomo Mitsui DS Asset Management chief economist Akiyoshi Takumori predicts GDP growth of 1.7% on quarter and 6.9% annualized in Q4, with much of the expansion coming from domestic demand. The contribution of net exports is expected to slow to +0.2 percentage point from +2.7% point in Q3. Takumori estimates the economy still shrank 2.3% from a year earlier.
He forecast private consumption, which accounts for about 55% of GDP, rose 2.3% on quarter in Q4 after rebounding 5.1% in Q3, business investment gained 2.2% after dipping 2.4% in the previous quarter and exports increased 8.0% vs. 7.0% previously.
Economists on average predict that the economy will contract again, by 0.99% annualized, in January-March, as rising coronavirus cases and government restrictions on economic activity are expected to dampen consumer spending while business investment and exports are likely to lose some steam, according to the ESP Forecast.
Contact this reporter: max@macenews.com.
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