–Households Dining Out, Traveling More, Limiting Y/Y Drop in May Vs. April, March
–Govt Official: Cannot Yet Say If Rising Inflation Hurting Spending; Covid, Weather Also Affect Consumers
–Real Household Income Falls For 2nd Straight Month as Inflation Bites
By Max Sato
(MaceNews) – Japan’s real household spending unexpectedly fell on year for the third straight month in May as supply constraints are causing shortages of vehicles and car navigation systems and people are cooking less at home while dining out more, data released Friday by the Ministry of Internal Affairs and Communications showed.
However, the year-on-year drop was limited as pent-up demand for shopping, traveling, and dining out continued emerging after the government ended about two months of strict Covid restrictions in late March, well in time for the Golden Week holidays from April 29 until May 5.
Household expenditures also marked the first month-on-month drop in three months in May as new vehicle sales fell in May from April after recovering in March. Covid lockdowns in Chinese cities including Shanghai, the trading hub, continued disrupting parts supplies to automakers, electronics firms and production machinery makers, pushing down Japan’s industrial production.
Looking ahead, Japan faces a seventh wave of the pandemic now that many prefectures have reported a jump in the numbers of new Covid cases this week, although the levels are much lower than the Omicron-triggered spike in February.
In the first half of 2021, the government declared a Covid “state of emergency” for many regions, limiting economic activity for two months from early January until mid-March, and again for nearly two months until the end of May. It resulted in a slump in consumer spending and a GDP contraction in January-March 2021, but the economy rebounded in the following quarter.
The key points from the monthly Family Income and Expenditure Survey on Households:
* Real average spending by households with two or more people fell 0.5% on the year in May, coming in much weaker than the Mace News median economist forecast of a 2.0% rise. It was the ninth year-on-year decline in the past 12 months, following decreases of 1.7% in April and 2.3% in March, a 1.1% rise in February and a 6.9% surge in January.
* The decrease in May was led by lower spending on motor vehicles and related items as well as vegetables and fish. Expenditures on eating and drinking out, domestic packaged tours, hotels and air/train fares continued rising from year-earlier levels.
* On the month, real average household spending plunged a seasonally adjusted 1.9% in May, marking the first drop in three months and the seventh decrease in the past 12 months, after rising 1.0% in April and 4.1 % in March, slumping 2.8% in February and falling 1.2% in January. It was weaker than the consensus forecast of a 0.8% rise.
* The government sees household spending in May as “largely flat,” with the year-on-year drop shrinking to 0.5% from 1.7% the previous month.
* “We cannot yet say whether rising inflation is limiting household spending because it is hard to separate it from other factors like the impact of the pandemic and weather,” a ministry official told Mace News. Surging costs for daily necessities are eroding average household disposable income, down 5.1% on year May for a second straight drop, and the average propensity to consume slipped by 3.3 percentage points on the month to 64.2% on a seasonally adjusted basis, although it rose 1.2 points from a year earlier to an unadjusted 87.6%.
* The average real income of households with salaried workers fell 2.7% on year in May (up just 0.1% in nominal terms) for the second drop in a row after plunging 3.5% in April and rising 2.3% in March. “We can say it is not catching up with rising prices,” the ministry official said. The annual consumer inflation rate has topped 2%, relatively high for a country that was mired in deflation for 15 years until mid-2013, now that the base effect of large discounts on mobile communication costs introduced in April 2021 has waned and costs for food and energy continue rising at a face pace.
* The main bread-earner’s real income in the average household also marked the second straight year-on-year drop, down a real 2.7% (up a nominal 0.1%), after falling 2.7% in April and rising 2.2% in March. The average spouse income posted the fourth straight rise, up a real 1.7% (a nominal 4.6%) in May, following increases of 1.2% in April and 3.7% in March, as firms are raising part-time worker’s wages more than those for full-time employees.
Wage Pickup Slow, Down in Real Terms
The pickup in nominal wages in Japan continued in May while real wages continued falling in tandem with rising food and energy costs, data released Tuesday by the Ministry of Health, Labour and Welfare showed.
Total monthly average cash earnings per regular employee in Japan posted the fifth straight year-on-year rise, up a preliminary 1.0% in May after rising a revised 1.3% in April. In real terms, however, average wages fell 1.8% on year for the second straight drop after dipping 1.7%.
Base wages rose 1.2% on year in May, marking the seventh straight gain after rising a revised 1.0% in April. The key indicator for overall wages has been on a modest recovery trend in the past year.