–Spending Drop Also Due to Continued Cut in High School Supplementary Education; Housing Also Down
–Spending on Packaged Tours, Train/Air Fares Continues Rising on Tourism Support Program
–Real Household Income Posts 7th Straight Y/Y Drop on High Food Costs but Energy Subsidies Capping Utility Charges
By Max Sato
(MaceNews) – Japan’s real household spending fell at a faster pace than expected in April for a second straight decline on the year as people remained frugal by switching to discount mobile phone plans amid high costs for daily necessities, but spending on traveling and dining out was strong on pent-up demand, data released Tuesday by the Ministry of Internal Affairs and Communications showed.
Both the government and the Bank of Japan have been providing stimulus to help the economy recover fully from the pandemic-caused slump. The output gap has remained negative in the past few years while real wages have been sliding. Nominal wages are expected to grow at a fast rate this year amid labor shortages in some sectors.
The key points from the monthly Family Income and Expenditure Survey on Households:
* Real average spending by households with two or more people slumped 4.4% on the year in April after falling 1.9% in March and rebounding 1.6% in February on a 0.3% dip in January. It was weaker the median economist forecast of a 2.3% drop (forecasts ranged from a 2.8% drop to a 0.5% gain). The decrease was the sixth in 12 months.
* “Overall, households are not slashing spending on all items but they are focusing more on what to spend on and what to save on,” a ministry official told Mace News. Core real expenditures, which exclude volatile items like housing (repairs, maintenance, rent), automobiles and gift money, fell at a slower pace of 2.1% on year in April, he said. Spending on housing plunged a real 15.3% in April, trimming overall household spending by 0.89 percentage point for a second straight year-on-year drop, but the official said it is uncertain whether this is a blip or becoming a trend.
* The real spending adjusted index (2020 = 100) stood at 99.0 in April, down sharply from 100.3 in March, 101.1 in February and 103.6 in January (the highest since 104.9 in April 2021). It was the lowest since February 2022, when the index was also at 99.0 but the official said this does not mean the sending patterns have slipped back to the more restricted time at the peak of the pandemic.
* The decline was led by the widespread move among many mobile phone users to switch to discount plans as their purchasing power has been eroded by surging costs for food and durable goods. Households continued spending less on groceries (fish) and prepared food (bento boxes), compared to the earlier phase of the pandemic, when households had cooked more at home and bought takeout food to avoid contact.
* Households also spent less on high school supplementary education in April, pushing down overall expenditures from a year earlier as seen in March. This category has been weak since November 2022. The decline is due to combined factors, such as the falling population aged under 18 years old, rising consumer prices and the trend among schools to finish entrance examinations by the end of December for the school year starting in April.
* Backed by the government’s tourism subsidy program, households continued spending more on eating out, domestic packaged tours, compared to a year earlier when Covid restrictions were partially eased but not lifted widely as in March and April this year. People also spent more on overseas packaged tours in April, paying for their trips during the Golden Week holidays in early May in light of news reports that the government would lift most of its border control on entries and re-entries by end-April. In 2022, the government resumed restrictions on social and economic activities in 35 of the 47 prefectures in late January and extended strict Covid rules for Tokyo and 17 other jurisdictions until March 21.
* On the month, real average household spending fell a seasonally adjusted 1.3% in April after dipping 0.8% in March, slumping 2.4% in February and rising 2.7% in January for an eighth decrease in 12 months. It was much weaker than the consensus forecast of a 0.2% rise (forecasts ranged from a 0.7% fall to a 3.8% gain).
* The average real income of households with salaried workers posted the seventh straight year-on-year drop, down 1.4% in April (up 2.6% in nominal terms), although the figures were better than in March, when the average income fell a real 4.5% and a nominal 0.9%. The main bread-earner’s real income in the average household marked the fourth straight year-over-year drop while the average spouse real income posted the 15th straight rise.
Real Wage Drop Continues; Gradual Pickup in Nominal Base Wages Intact
The gradual pickup in nominal wages in Japan continued while real wages fell on the year for the 13th straight month, data released Tuesday by the Ministry of Health, Labour and Welfare showed.
Total monthly average cash earnings per regular employee in Japan posted their 16th straight year-on-year rise, up a preliminary 1.0% in April, after rising 1.3% (revised up from 0.8%) in March and 0.8% in the previous two months. The 4.1% surge in December 2022 was led by winter bonus payments that were concentrated at the end of the year.
In real terms, average wages fell a preliminary 3.0% on year in April after slumping 2.3% (revised up from a 2.9% drop) in March, 2.9% in February, 4.1% in January and edging down 0.6% in December. To calculate real wages, the ministry uses the overall consumer price index minus the structurally weak owners’ equivalent rent, which rose 4.1% on year in April after rising 3.8% on year in March, 3.9% in February and 5.1% in January. It was higher than the 3.4% annual rate in the core CPI (excluding fresh food) for the month.
Base wages rose a modest 1.1% on year, marking the 18th straight gain after rising 0.5% in March, 0.8% in February and 0.9% in January. The key indicator for overall wages has been on a modest recovery trend this year.