Japan’s household spending dropped for an eighth straight month and retail sales fell slightly in October, even as the unemployment rate remained at the lowest in two decades.
Key Points
Household spending fell 0.4 percent from a year earlier (forecast -1 percent), following a 2.1 percent decline in September. Retail sales fell 0.1 percent from a year ago (forecast -1.6 percent), after dropping 1.7 percent in September. Measured month-on-month, retail sales rose 2.5 percent (forecast +1.1 percent).
Declines in household spending and retail sales have narrowed since August, when poor weather hurt consumer demand, indicating that the gloom among consumers is lifting. But the tight job market hasn’t resulted in sustained significant wage gains, a key link in Prime Minister Shinzo Abe’s long-sought virtuous cycle in which higher corporate profits drive pay and spending higher.
The release of industrial production on Wednesday will offer more details on the state of Japan’s economy in the final quarter of 2016.
Economist Takeaways
“The headline figures seemed to show that private consumption has bottomed out, but they were helped by some special factors," said Atsushi Takeda, an economist at Itochu Corp. in Tokyo, citing higher food prices and more weekend days in October this year. "Sustainable gains in wages will be needed to make consumers loosen their purse strings," Takeda said.
"Even as employment conditions continue to improve, companies remain reluctant to raise salaries which increase their personnel costs because Japan’s potential growth rates look dimmer and profit prospects don’t look bright," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo.
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