–Q3 Core Spending Down 0.8% Q/Q for 3rd Straight Fall, Indicating Sluggish Consumption in Q3 GDP
–Move to Discount Mobile Phone Plans Continues, Pushing Down Spending
–Eating Out, Travel Solid; Demand for Automobiles Up on Improved Supply Chains
–Real Household Income Posts 12th Straight Y/Y Drop on Elevated Costs Despite Nominal Wage Hikes
By Max Sato
(MaceNews) – Japan’s real household spending posted its seventh straight drop on the year in September, down 2.8%, slightly worse than a 2.5% dip in August, as high costs for daily necessities promoted many to be more frugal and the lingering heat wave damped demand for autumn clothing and other seasonal goods, data released Tuesday by the Ministry of Internal Affairs and Communications showed.
On the month, expenditures edged up 0.3% after high demand for summer clothing triggered an above-forecast 3.9% rebound in August. Pent-up demand for eating out and traveling appears to have lost some steam.
The widespread move among consumers to switch to discount mobile phone plans remains intact while the pandemic-era necessity to simplify weddings and funerals pushed down the costs for ceremonies.
Both the government and the Bank of Japan have been providing stimulus to help the economy recover from the pandemic-caused slump. The output gap has turned slightly positive after three years of staying in negative territory but it is expected to slip back into negative territory after the third quarter GDP data is released later this month. Nominal wages are expected to grow at a fast pace in the current fiscal year amid labor shortages but real wages remain below year-earlier levels.
The key points from the monthly Family Income and Expenditure Survey on Households:
* Real average spending by households with two or more people fell 2.8% on the year in September after falling 2.5% in August, 5.0% in July, 4.2% in June, 4.0% in May, 4.4% in April, 1.9% in March and rebounding 1.6% in February on a 0.3% dip in January. It was firmer than the median economist forecast of a 3.5% fall (forecasts ranged from 4.5% to 2.1% drops). The decline was led by lower spending on remittance, telecommunications costs and vegetables while expenditures on automobiles, electricity and eating out showed solid gains.
* The impact of the lingering heat wave was widespread. It dented demand for autumn clothing and sportswear as well as other seasonal goods like bug sprays (the temperatures were so high that even mosquitoes were inactive). The unusually hot weather also hurt crops and boosted prices of vegetables, which in turn prompted consumers to trim spending on some fresh food.
* In a recurring technical development, spending on electricity fell a nominal 16.6% on the year as utility prices had been lowered by subsidies, but it rose 10.6% in real terms as the cost for electricity plunged 24.6% on the year in the September CPI data, pushing up the purchasing power for this item. Many households also spent more on electricity in August than in July by using air conditioners at the peak of the summer, which was reflected in the bills paid in September.
* The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell 3.0% on the year in September, compared to the 2.8% drop in overall spending, after falling 3.2% in July (down 2.5% overall).
* Core expenditures slipped 0.8% on quarter in July-September for the third straight drop after falling 2.4% in April-June, slipping 0.4% in January-March and rising 0.7% in October-December, indicating that private consumption is unlikely to contribute much to total domestic output in the preliminary third quarter GDP data due on Nov. 15.
* Japan’s economy is forecast by economists to post its first contraction in four quarters in July-September, down a slight 0.2% on quarter, or an annualized 0.6%, hit by a pullback in net exports after a surge in the previous quarter that was caused by easing import costs and also due to a drop in public works spending. Consumer spending and business investment may show a slight rebound but will likely lack strength.
* Compared to the previous month, real average household spending rose a seasonally adjusted 0.3% in September after surging 3.9% in August, plunging 2.7% in July, rebounding a modest 0.9% in June and following four months of decline. The latest figure was stronger than the consensus forecast of a 0.8% fall (forecasts ranged from a 1.9 drop to a 0.1% gain).
* The real spending adjusted index (2020 = 100) stood at a six-month high of 100.1 in September after rising to a five-month high of 99.8 in August from 96.1 in July. The index had drifted down from 100.3 in March, 101.1 in February and 103.6 in January (the highest since 104.9 in April 2021). The July figure is the lowest under the current statistical formula dating to January 2020.
* In the recent trend, households have reduced spending on weddings, funerals and other ceremonies as they have simplified the procedures to avoid close contact during the pandemic. The decline in overall spending is also due to the widespread move to switch to discount mobile phone plans and cancel land line telephone contracts. Households have also trimmed spending on after-school education support for high school students and young children as elevated costs for daily necessities have eroded their purchasing power.
* Spending on healthcare services and equipment (face masks and fever thermometers) marked the fifth straight year-over-year drop as the government widely eased Covid restrictions in May.
* 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. They are also being frugal as food costs remain high.
* On the upside, households continued spending more on eating out, train fees and airfares as well as overseas and domestic package tours amid eased Covid restrictions. Purchases of automobiles have also risen in recent months, thanks to improved supply chains and eased semiconductor shortages.
* The average real income of households with salaried workers posted the 12th straight year-over-year drop, down 5.8% in September (down 2.4% in nominal terms), after falling 6.9% in August (down 3.5% in nominal terms) after falling 6.6% (down a nominal 3.0%) in July. The main bread-earner’s real income in the average household marked the ninth straight year-over-year drop while the average spouse real income posted the fifth straight drop after recording the first decline in 16 months in May.
Real Wage Drop Continues; Nominal Base Wages Post Solid Gain
The pickup in nominal wages in Japan continued for nearly two years while real wages fell on the year for the 18th 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 21st straight year-on-year rise, up a preliminary 1.2% in September, after rising 0.8% (revised down from 1.1%) in August, 1.1% in July, 2.3% in June, 2.9% in May and a modest 0.8% in April. The recent slower pace was due to a decline in bonuses and other special pay for the second straight month in September as well as no growth in overtime pay in July.
Base wages rose a solid 1.5% on year, marking the 23rd straight gain, after rising a revised 1.3% in August. The pace of increase has accelerated moderately in recent months from 0.5% in March as many firms are raising wages to secure workers. The key indicator for overall wages has been on a recovery trend.
In real terms, average wages fell a preliminary 2.4% on year in September for the 18th consecutive drop after falling 2.8% (revised down from a 2.5% decline), 2.7% in July, 1.6% in June, 0.9% in May and 3.2% in April. To calculate real wages, the ministry uses the overall consumer price index minus the structurally weak owners’ equivalent rent, which rose 3.6% on year in September after rising 3.7% in August.
Consumer inflation in Japan eased in all three key measures in September as energy subsidies continued to push down electricity and natural gas utility costs and markups in processed food prices are peaking, data from the Ministry of Internal Affairs and Communication released last month showed.